<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2000
REGISTRATION NO. 333-93569
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
JATO COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 84-1466226
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
--------------------------
1099 18(TH) STREET
SUITE 2200
DENVER, CO 80202
(303) 226-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
GERALD K. DINSMORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JATO COMMUNICATIONS CORP.
1099 18(TH) STREET
SUITE 2200
DENVER, CO 80202
(303) 226-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
JAMES C.T. LINFIELD, ESQ. RICHARD L. NEVINS, ESQ.
COOLEY GODWARD LLP BAKER & MCKENZIE
2595 CANYON BOULEVARD, SUITE 250 805 THIRD AVENUE
BOULDER, CO 80302 NEW YORK, NY 10022
(303) 546-4000 (212) 751-5700
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT OF
PROPOSED MAXIMUM PROPOSED MAXIMUM ADDITIONAL
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT PRICE(1)(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value....... 10,263,750 $15.00 $153,956,250 $7,645
</TABLE>
(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
(3) $7,645 paid herewith, and $33,000 paid in connection with the initial filing
of this registration statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 14, 2000
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
8,925,000 SHARES
[LOGO]
JATO COMMUNICATIONS CORP.
COMMON STOCK
------------------
This is Jato's initial public offering of common stock. We will sell the
first $125.0 million of common stock. If the gross proceeds exceed that amount,
we and the selling stockholders will sell additional shares. See "Principal and
Selling Stockholders."
We expect the public offering price to be between $13.00 and $15.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "JATO."
Immediately following the closing of this offering, we will issue and sell
to a wholly owned subsidiary of Qwest Communications Corporation 178,571 shares
of our common stock (based on an assumed initial public offering price of $14.00
per share) having an aggregate purchase price of $2.5 million in a private
placement at the public offering price per share. We also have agreed to issue
to the Qwest subsidiary a warrant to purchase 297,619 shares of our common stock
(based on an assumed initial public offering price of $14.00 per share) having
an aggregate exercise price of $5.0 million at an exercise price per share of
120% of the public offering price per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price................................... $ $
Underwriting Discounts.................................. $ $
Proceeds, before expenses, to Jato...................... $ $
</TABLE>
------------------------
The underwriters may also purchase from us, and in some circumstances from
the selling stockholders, up to an additional 1,338,750 shares at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus to cover over-allotments. See "Principal and Selling
Stockholders."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect that the shares of common stock will be ready for delivery in New
York, New York on or about , 2000.
------------------------
MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
----------------
The date of this prospectus is , 2000.
<PAGE>
[Inside front cover -- Picture of the sky with clouds overlaid with a map of the
United States overlaid with the Company's network architecture. The top right
hand corner of the inside front cover contains the text "Network Architecture."]
[Gatefold -- Map of United States highlighting selected markets throughout the
United States in which we currently provide and intend to provide service by the
end of 2000. Bottom left corner of gatefold contains logos or names of each of
our strategic partners with the text "Strategic Relationships." The top left
hand corner of the gatefold contains the text "Jato Service Area."]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 3
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 26
Management.................................................. 47
Principal and Selling Stockholders.......................... 58
Certain Relationships and Related Transactions.............. 62
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 69
Underwriting................................................ 71
Legal Matters............................................... 74
Experts..................................................... 74
Where You Can Find Additional Information................... 74
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF THEY GIVE YOU SUCH INFORMATION OR MAKE SUCH REPRESENTATIONS, YOU
MUST NOT RELY UPON THEM AS HAVING BEEN AUTHORIZED BY US OR THE UNDERWRITERS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
ANY SECURITIES OTHER THAN THESE REGISTERED SECURITIES. IT IS ALSO NOT AN OFFER
TO, OR A SOLICITATION OF AN OFFER FROM, ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT WE HAVE HAD NO CHANGE IN OUR BUSINESS SINCE THE DATE OF THIS
PROSPECTUS OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AT
ANY TIME AFTER THE DATE OF THIS PROSPECTUS.
We own applications for federal registration and claim rights in the service
mark Jato. We also claim rights in the service marks JatoBridge and JatoDirect.
This prospectus also refers to trade names and trademarks of other companies.
We were incorporated in Delaware on June 12, 1998. Our principal executive
office is located at 1099 18(th) Street, Suite 2200, Denver, Colorado 80202 and
our telephone number is (303) 226-8400. The information contained on our Web
site, www.jato.net, does not constitute part of this prospectus.
i
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION REGARDING OUR BUSINESS AND IS
QUALIFIED BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD CAREFULLY READ AND CONSIDER THIS ENTIRE PROSPECTUS,
INCLUDING THE "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND ALL
RELATED NOTES BEFORE MAKING AN INVESTMENT DECISION.
JATO COMMUNICATIONS CORP.
OVERVIEW
We provide our customers broadband data communications services including
high speed Internet access, e-commerce, wide and local area networking and
associated applications and services. Our services are tailored to meet the
growing data communications needs of small- and medium-sized businesses in our
targeted markets. We are developing a nationwide network platform based
principally on digital subscriber line, or DSL, technology. DSL is a data
transmission technology enabling high-speed access through an existing copper
connection located between the network service provider and the end user. We
have designed our network to accomodate a variety of local access technologies
in addition to DSL. We intend to offer our services primarily through a direct
sales force comprised of account managers, telesales personnel and specialized
account groups. As more fully described in "Business--Strategic Alliances," we
have entered into strategic arrangements with Global Crossing Bandwidth, Inc.,
Lucent Technologies, Microsoft Corporation and Qwest Communications Corporation
in order to rapidly deploy our network and achieve our sales and operating
goals.
We have targeted 50 smaller metropolitan areas nationwide which we believe
present attractive business opportunities and are currently undeserved by
existing data communications providers. We estimate these secondary markets
contain, in aggregate, approximately 2.8 million businesses and 145 cities. We
expect to offer services in 40 of our targeted secondary markets by the end of
2000 and expect to offer services in all 50 of our targeted secondary markets by
the middle of 2001. As of January 31, 2000, we offered service in four markets
and have equipment installed in 160 incumbent carrier central offices which
comprise an incremental six markets. As of January 31, 2000, we had
approximately 725 lines in service and we were under contract to supply over
1,100 additional lines to our customers.
Since inception, we have raised $74 million in equity from a group of
investors that includes the following entities or their affiliates: ABN-AMRO,
CEA Capital, Crest Communications, Global Crossing, Hambrecht & Quist, Mayfield
Fund, Microsoft, TCI Satellite Entertainment and U.S. Telesource, Inc., a wholly
owned subsidiary of Qwest Communications Corporation. Throughout this document,
Qwest refers to Qwest or its subsidiary, as applicable. In addition, we have a
$50 million vendor financing agreement with Lucent Technologies.
STRATEGY
Our objective is to become a leading nationwide provider of data
communications services to small and medium sized businesses in our target
markets. Our strategy includes the following key elements:
- Exploit early-mover advantage,
- Acquire customers through direct marketing and other sales channels,
- Offer a wide variety of Internet based applications and services, and
- Retain customers through superior customer care and support.
1
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered by Jato.............. 8,925,000 Shares(1)
Common stock outstanding after this
offering................................ 53,553,284 Shares(2)
Use of proceeds........................... We intend to use approximately $64.1 million of the net
proceeds from the offering and the concurrent placement
to Qwest to fund capital expenditures and operating
losses related to the continued deployment of our
network, an additional $30.0 million to expand sales and
marketing activities and the remaining $22.9 million for
working capital and other general corporate purposes.
Dividend policy........................... We currently intend to retain any future earnings to
fund the growth and development of our business.
Therefore, we do not currently anticipate paying cash
dividends.
Proposed Nasdaq National Market Symbol.... JATO
</TABLE>
- ------------------------
(1) Our selling stockholders will sell shares in this offering if the aggregate
gross proceeds of this offering exceed $125 million. See "Principal and
Selling Stockholders."
(2) Based on the number of shares outstanding on March 1, 2000. Includes
34,842,805 shares of common stock to be issued upon conversion of our
preferred stock, and the 178,571 shares of common stock to be issued to
Qwest at an assumed initial public offering price of $14.00 per share upon
the closing of the concurrent placement. Excludes 5,940,225 shares of common
stock issuable upon the exercise of stock options outstanding as of
March 1, 2000, with a weighted average exercise price of $2.60 per share,
334,808 of which were exercisable, 7,035 shares of common stock issuable
upon the exercise of outstanding warrants at an exercise price of $2.13 per
share and the 297,619 shares of common stock issuable pursuant to a warrant
with an aggregate exercise price of $5.0 million and a per share exercise
price equal to 120% of the initial public offering price per share in this
offering. Unless we indicate otherwise, all information in this prospectus
pertaining to the purchase price per share for the shares to be sold to
Qwest in the concurrent placement assumes an initial public offering price
of $14.00 per share and the exercise price per share for the warrant to be
issued to Qwest in the concurrent placement of $16.80, representing 120% of
the assumed initial public offering price of $14.00 per share. See
"Capitalization."
------------------------
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO COMMON
STOCK UPON THE CLOSING OF THE OFFERING
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, AND
- A 1.407-FOR-1 STOCK SPLIT OF THE COMMON STOCK TO BE COMPLETED PRIOR TO THE
CLOSING OF THIS OFFERING.
2
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF
OUR COMMON STOCK. OUR BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY
HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE PART OR ALL OF YOUR
INVESTMENT.
WE HAVE A SHORT OPERATING HISTORY UPON WHICH TO BASE YOUR INVESTMENT DECISION
We were formed in June 1998 and have limited historical financial and
operating data upon which you can evaluate our business and prospects. Prior to
December 1999, we were considered a development stage company. We commenced
commercial operations in June 1999. Investors in our common stock must consider
our business and prospects in light of the risks and difficulties typically
encountered by companies in their early stages of operations, particularly those
in rapidly evolving markets such as the telecommunications industry.
BECAUSE THE MARKET FOR DSL AND OTHER BROADBAND SERVICES IS NEW AND EVOLVING, WE
CANNOT PREDICT ITS FUTURE GROWTH OR ULTIMATE SIZE
The market for DSL and other broadband services is in its early stage of
development. Since this market is new and evolving and because our current and
future competitors are likely to introduce competing services, we cannot
accurately predict the rate at which this market will grow, if at all, or
whether new or increased competition will result in market saturation. Various
providers of similar communications services are testing products from various
suppliers for various applications, and suppliers have not broadly adopted an
industry standard. If the market for these services, or the 50 target markets we
have identified, fail to develop, grow more slowly than anticipated or become
saturated with competitors, these events could impair our ability to generate
revenue and achieve profitability.
OUR STRATEGY OF TARGETING SECONDARY MARKETS IS UNPROVEN
We believe that the combination of our unproven business model and the
highly competitive and fast changing market in which we compete makes it
impossible to predict the extent to which our network services will achieve
market acceptance and our overall success. Our larger competitors have chosen to
target the largest, most populous markets in the U.S., while we have elected to
focus on smaller, less populous markets. To be successful, we must develop and
market network services that are widely accepted by businesses at profitable
prices. We may never be able to deploy our network as planned, achieve
significant market acceptance, achieve favorable operating results or
profitability or generate sufficient cash flow to repay our debt.
WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE AS WE EXPAND OUR NETWORK
SERVICES
We have incurred losses and experienced negative operating cash flow for
each month since our formation. As of December 31, 1999, we had an accumulated
deficit of approximately $15.3 million. We intend to rapidly and substantially
increase our capital expenditures and will incur materially higher operating
expenses in an effort to expand our network services. Furthermore, as a result
of recent stock and option grants, we anticipate that there will be significant
charges to earnings in future periods. As a result of these factors, we expect
to incur substantial operating and net losses and negative operating cash flow
for the foreseeable future. We will need to obtain additional financing to
expand our network, pay our expenses, and make payments on our debt. We cannot
give you any assurance about whether or when we will have sufficient revenues to
satisfy our funding requirements or pay our debt service obligations.
3
<PAGE>
OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING LEVELS
COULD IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW
We are expanding our operations based in part upon our prediction of future
prices that we will attain for our services. Our failure to achieve or sustain
market acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would have a material adverse effect
on our business, prospects, operating results and financial condition. Prices
for high-speed Internet access and other data transport and networking services
have fallen historically and we expect this trend will continue and may
accelerate. In addition, to expedite customer acquisition in new markets, we
have reduced and expect that we will need to continue to reduce installation
costs, provide customer premise equipment at prices below our own costs and
provide discounted monthly service fees. Accordingly, we cannot predict to what
extent we may need to reduce our prices to remain competitive or whether we will
be able to sustain future pricing levels as our competitors introduce competing
services or similar services at lower prices.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND COULD CAUSE OUR STOCK PRICE TO BE VOLATILE
Our annual and quarterly operating results are likely to fluctuate
significantly in the future due to numerous factors, many of which are outside
of our control. These factors include:
- our ability or inability to deploy our network on a timely basis;
- the rate of customer acquisition and turnover;
- the prices our customers are willing to pay;
- the amount and timing of expenditures relating to the expansion of our
network and service offerings;
- the timing and availability of central office collocation facilities and
transport facilities;
- the expansion and success of our strategic alliances and relationships;
- introduction of new services or technologies by our competitors;
- price competition;
- the ability of our equipment, applications and service suppliers to meet
our needs;
- regulatory developments, including interpretations of the 1996
Telecommunications Act;
- technical difficulties or network downtime; and
- the condition of the communications and network service industries and
general economic conditions; and
- the amount and timing of noncash charges resulting from compensation
expenses.
Because of these factors, our operating results in one or more future
periods could fail to meet or exceed the expectations of securities analysts or
investors. In that event, the trading price of our common stock would likely
decline.
WE DEPEND ON OUR BILLING, CUSTOMER SERVICE AND INFORMATION SUPPORT SYSTEMS TO
OPERATE OUR BUSINESS
Information and processing systems are vital to our growth and ability to
monitor costs, bill customers, process customer orders and achieve operating
efficiencies. Our plans for the development and implementation of our
operational and support systems rely, for the most part, on acquiring products
and services offered by third-party vendors and integrating those products and
services
4
<PAGE>
in-house to produce efficient operational solutions. However, we may not
successfully identify all of our information and processing needs or implement
these systems on a timely basis or at all, and these systems may not perform as
expected.
We have only recently begun to acquire rights to use these vital products
and services. In addition, our right to use these systems will be dependent upon
license agreements with third-party vendors. Some of those agreements may be
cancelable by the vendor and the cancellation or nonrenewal of these agreements
may interrupt our service until we find alternative suitable vendors.
OUR DEPENDENCE ON INCUMBENT CARRIERS FOR COLLOCATION AND TRANSMISSION FACILITIES
COULD DELAY OUR ABILITY TO PROVIDE OUR SERVICES
We must use copper telephone lines controlled by the incumbent carriers to
provide DSL connections to customers. We also depend on the incumbent carriers
for collocation, for a substantial portion of the transmission facilities we use
to connect our equipment in incumbent carrier central offices to our network and
for testing and maintaining the quality of the copper lines that we use. In many
cases, we may be unable to obtain access to collocation and transmission
facilities from the incumbent carriers, or to gain access at acceptable rates,
terms and conditions, including timeliness. Lengthy periods between our request
for and the actual provision of the collocation space and telephone lines will
cause us to incur significant expenses in advance of the receipt of revenues. If
sales that we forecast for a particular period do not occur due to these delays,
or due to the loss of potential customers, our business, prospects, operating
results, and financial condition could be materially and adversely affected.
Because we will compete with incumbent carriers in our markets, they may be
reluctant to cooperate with us. If this occurs, we may not have alternate means
of connecting our DSL equipment with the copper lines or connecting our
equipment in central offices to our switching centers. The number of other
competitive carriers that request collocation space will also affect the
availability of collocation space and transmission capacity. Delays in obtaining
access to collocation space and telephone lines or the rejection of our
applications for collocation could result in delays in, and increased expenses
associated with, the rollout of our services.
WE DEPEND ON THE QUALITY AND AVAILABILITY OF EXISTING COPPER LINES
We depend significantly on the quality and availability of incumbent
carriers' copper lines and their maintenance of such lines. We may not be able
to obtain the copper lines and the services we require from incumbent carriers
at satisfactory quality levels, rates, terms and conditions. Our inability to do
so could delay the expansion of our networks and degrade the quality of our
services to our customers.
WE ARE UNABLE TO CONTROL THE TERMS AND CONDITIONS UNDER WHICH WE GAIN ACCESS TO
INCUMBENT CARRIER COLLOCATION AND TRANSMISSION FACILITIES WHICH COULD CAUSE
DELAYS IN OUR EXPANSION INTO ADDITIONAL MARKETS
We are required to enter into and implement interconnection agreements in
each of our target regions with the appropriate incumbent carrier in order to
provide service in those regions. We cannot control the terms under which we
collocate our equipment, connect to copper lines or gain the use of an incumbent
carrier's transmission facilities. State tariffs, state public utility
commissions and interconnection agreements with the incumbent carriers determine
the price, terms and conditions under which collocation space is made available.
We may be unable to negotiate, enter into or renew requisite interconnection
agreements on acceptable terms or at all. In addition, disputes may arise
between us and the incumbent carriers with respect to interconnection
agreements, and we may be unable to resolve disputes in our favor. If we are
unable to enter into or experience a delay in obtaining interconnection
agreements, this inability or delay could cause delays in our expansion into
5
<PAGE>
additional markets. In addition, the interconnection agreements are subject to
Federal Communications Commission, or FCC, state commission and judicial
oversight. These government authorities may modify the terms of the
interconnection agreements in a way that harms our business.
OUR DEPENDENCE ON THIRD PARTIES FOR TRANSPORT CONNECTIONS COULD EXPOSE US TO
DELAYS
We depend on the availability of transport connections from third parties to
connect our equipment within and between our markets. These third party carriers
include interexchange carriers, incumbent carriers and other competitive
carriers. Many of these entities are, or may become, our competitors. We may be
unable to negotiate and renew favorable supply agreements. Further, we depend on
the timeliness of these companies to process our orders for customers who seek
to use our services. Moreover, the backhaul and backbone transport providers
whose networks we lease may be unable to obtain or maintain permits and
rights-of-way necessary to develop and operate existing and future networks.
WE WILL RELY ON DIRECT SALES, WHICH MAY NOT BE A COST-EFFECTIVE METHOD OF
SELLING OUR SERVICES TO BUSINESSES
We will market and sell our products through a direct sales force supported
by a dedicated marketing staff. The market for DSL and other broadband services
is new, and our direct sales efforts may not be a cost-effective means of
selling these services to businesses. Many of our competitors are selling their
services indirectly through ISPs, or Internet service providers, other carriers,
value-added resellers, and system integrators. Our direct method may prove to be
a more costly approach. Although we believe that our success depends largely on
maintaining a dedicated marketing staff and sales force, we may not achieve a
level of sales sufficient to justify maintaining our own marketing staff and
sales force.
WE WILL ALSO RELY ON INDIRECT SALES, WHICH MAY BE INEFFECTIVE
We will also rely on indirect sales channels for the marketing and sales of
our network services. We will seek to establish relationships with numerous
service providers, including ISPs, interexchange carriers, other competitive
carriers and value added resellers to gain access to customers. All of our
agreements to date with service providers are non-exclusive, and we anticipate
that future agreements will also be on a non-exclusive basis, allowing service
providers to resell services offered by our competitors. These agreements are
generally short term, and can be cancelled by the service provider without
significant financial or other consequences. We cannot control how these service
providers perform and cannot be certain that their performance will be
satisfactory to us or our customers. Many of these companies also compete with
us. If the number of customers we obtain through indirect sales channels is
significantly lower than our forecast for any reason, or if the service
providers with which we have contracted are unsuccessful in competing in their
own intensely competitive markets, we will be unable obtain the market
penetration required to achieve and sustain profitability.
INTENSE COMPETITION IN OUR TARGET MARKETS COULD PREVENT US FROM INCREASING
REVENUE AND ACHIEVING OR SUSTAINING PROFITABILITY
Our industry is highly competitive. We have not obtained significant market
share in any of the areas where we offer or intend to offer services, nor do we
expect to do so in the near future given the size of the local
telecommunications market, the intense competition and the diversity of customer
needs. In each market area in which we provide or intend to provide services, we
compete or will compete with several other service providers and the variety of
technologies they use for local access,
6
<PAGE>
high-speed connections. We anticipate the level of competition in our industry
to intensify in the future due, in part, to increasing consolidation. We
anticipate significant competition from:
- Incumbent local exchange carriers, which have begun deploying DSL-based
services or other high-speed data communications services, combined with
existing wide area, metropolitan and local area networks;
- DSL-based competitive local exchange carriers which are currently
providing DSL-based services in numerous areas;
- Interexchange carriers which are building and expanding their networks to
support high-speed local access, including competitive DSL-based services,
combined with metropolitan and wide area networks, as well as offering a
full range of Internet services and applications;
- Cable modem service providers which are offering high-speed Internet
access over cable networks, and principally to residential customers, have
positioned themselves to do the same for businesses;
- Traditional competitive local exchange carriers which have recently begun
offering DSL services to their customers;
- ISPs which have begun to develop high-speed access capabilities to augment
their existing products and services; and
- Providers utilizing alternative technologies, such as wireless and
satellite-based data service providers.
Most of our current and potential competitors have longer operating
histories, larger customer bases, more established relationships with customers
and suppliers in their respective industries, greater name recognition and
significantly greater financial, technical, marketing, service support and other
resources than Jato. We also face intense competition with respect to the prices
and types of services and products we offer. As a result, our competitors may be
able to respond more quickly than we can to new and evolving opportunities,
technologies or customer demands. For more information regarding our competition
see "Business -- Competition."
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED
We have yet to generate significant revenues, and have no assurance of
future revenues. We believe that our cash and cash equivalents at December 31,
1999, additional funds received from Global Crossing, Microsoft and Qwest, the
proceeds from this offering and amounts available under our Lucent credit
facility, will be adequate to fund our capital expenditures and operating losses
through November 2000. We will not have completed our network deployment by then
and will need additional capital, whether or not our estimate on how long
current capital resources will last is accurate. If we are not able to raise
additional funds when needed, we would be required to significantly scale back
our operations. This would have a material adverse effect on our business,
prospects, operating results and financial condition. There can be no assurance
that additional capital will be available on terms acceptable to us, or at all.
The expansion and development of our business will require significant
additional capital. To realize our network deployment objectives, we spent
$21.2 million in 1999, and expect to spend an additional $100 million in 2000.
We will require additional financing to fund our capital expenditures and
operating losses in the future. Our actual funding requirements may differ
materially if our assumptions are incorrect.
We may be unable to obtain any future equity or debt financing on acceptable
terms or at all. Recently the financial markets have experienced extreme price
fluctuations. A market downturn or
7
<PAGE>
general market uncertainty may adversely affect our ability to secure additional
financing. If we are unable to obtain additional capital or are required to
obtain it on terms less satisfactory than what we desire, we will need to delay
deployment of our services or take other actions that could adversely affect our
business, prospects, operating results and financial condition. To date, our
cash flow from operations has been insufficient to cover our expenses and
capital needs. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
WE MAY NOT BE ABLE TO SERVICE EXISTING AND FUTURE DEBT OBLIGATIONS, WHICH MAY BE
SUBSTANTIAL, OR COMPLY WITH RESTRICTIVE COVENANTS IMPOSED BY OUR LENDERS
Lucent has provided us with a $50 million credit facility which is secured
by substantially all of our network equipment. We expect to borrow the entire
amount of this facility. We expect to seek additional financing in the near
future, which may include the incurrence of substantial debt obligations. We are
not currently generating cash flows, and have no assurances of future cash
flows, sufficient to fund our operations or repay existing or future debt. Thus,
there is no assurance that we will be able to repay our existing debt or any
additional debt in the future. In addition to the restrictive covenants imposed
on us by our credit facility with Lucent, any debt we are able to raise in the
future will likely contain restrictive covenants that would place additional
burdens on our ability to execute our business plan or incur additional debt.
CHANGES TO REGULATIONS AFFECTING THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE
DEMAND FOR OUR PRODUCTS OR ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
We are subject to regulation by the FCC, and by state public service and
public utility commissions as a provider of telecommunications services. Changes
in existing laws, policies or regulations in the states and localities we serve
or by the FCC could materially and adversely affect our business, prospects,
operating results or financial condition, particularly if those legal,
regulatory or policy changes increase the cost and regulatory burdens of
providing services. There can be no assurance that regulatory authorities in the
areas we serve or the FCC will not take actions having an adverse effect on our
business, prospects, financial condition or operating results. The 1996
Telecommunications Act has significantly altered regulation of the
telecommunications industry by preempting state and local laws to the extent
that they prevent competition and by imposing a variety of new duties on
competitive carriers and incumbent carriers in order to promote competition in
local exchange and access services. Although we believe that the 1996
Telecommunications Act and other trends in federal and state legislation and
regulation that favor increased competition are to our advantage, there can be
no assurance that the increased competitive opportunities or other changes in
current regulations or future regulations at the federal or state level will not
have a material adverse effect on our ability to expand into additional markets.
See "Business -- Government Regulation."
FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
To meet our objectives, we need to rapidly and significantly expand our
operations. Our expansion to date has challenged our management, financial
controls, operations systems, personnel and other resources. Any future rapid
expansion would increase these strains. If our marketing strategy is successful,
we may experience difficulties responding to customer demand for services and
technical support in a timely manner and in accordance with customer
expectations. As a result, rapid growth of our business would make it difficult
to implement successfully our strategy to provide superior customer service. To
manage the expected growth of our operations, we must:
- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
8
<PAGE>
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies; and
- effectively manage multiple relationships with our customers, suppliers
and other third parties.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
Failure to manage our future growth effectively could adversely affect the
expansion of our customer base and service offerings. Any failure to
successfully address these issues could materially and adversely affect our
business, prospects, operating results and financial condition.
UNLESS WE ARE ABLE TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY, WE WILL NOT BE
ABLE TO SUSTAIN OR GROW OUR BUSINESS
The telecommunications industry is subject to rapid and significant
technological changes, including continuing developments in DSL technology,
which does not have widely accepted standards, and alternative technologies for
providing high-speed data communications. As a consequence:
- we will rely on third parties, including some of our competitors and
potential competitors, to develop and provide us with access to
communications and networking technology;
- our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
- we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our products and technologies.
If we fail to adapt successfully to technological changes or fail to obtain
access to important technologies, our business will suffer.
WE MAY BE UNABLE TO EFFECTIVELY EXPAND OUR NETWORK SERVICES AND PROVIDE HIGH
PERFORMANCE TO A SUBSTANTIAL NUMBER OF END USERS
Due to the limited deployment to date of our network services, we cannot
guarantee that our network will be able to connect and manage a substantial
number of end users while achieving high performance. Further, our network may
be unable to achieve and maintain competitive digital transmission speeds.
Actual transmission speeds on our network will depend on a variety of factors
and many of these factors are beyond our control, including the type of DSL
technology deployed, the distance an end user is located from a central office,
the quality of the telephone lines, the presence of interfering transmission on
nearby lines and other factors. As a result, we may not be able to achieve and
maintain digital transmission speeds that are attractive in the market which
would harm our business.
OUR SERVICES MAY SUFFER BECAUSE THE TELEPHONE LINES WE REQUIRE MAY BE
UNAVAILABLE OR IN POOR CONDITION
Our ability to provide DSL-based services to potential customers depends on
the quality, physical condition, availability and maintenance of telephone lines
within the control of the incumbent carriers. We believe that the current
condition of telephone lines in many cases will be inadequate to permit us to
fully implement our network services. In addition, the incumbent carriers may
not maintain the telephone lines in a condition that will allow us to implement
our network effectively. The telephone lines may not be of sufficient quality or
the incumbent carriers may claim they are not of sufficient quality to allow us
to fully implement or operate our network services. Further, some customers use
9
<PAGE>
technologies other than copper lines to provide telephone services, and DSL
might not be available to these customers.
IF WE ARE UNABLE TO RETAIN AND HIRE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO
SUCCESSFULLY ACHIEVE OUR OBJECTIVES
Our success depends on the performance of our key personnel in executing our
business plan including the continued service of Gerald K. Dinsmore, our
President and Chief Executive Officer, William D. Myers, our Senior Vice
President, Finance and Strategic Planning and Chief Financial Officer, Terri L.
Compton, our Executive Vice President, Operations and Chief Operating Officer
and Rex A. Humston, our Senior Vice President, Engineering and Chief Technology
Officer. Several members of our senior management team have joined Jato very
recently. If they are unable to effectively integrate themselves into our
business or work together as a management team, our business will suffer. See
"Management." In addition, our employees, including members of our senior
management team, may terminate their employment with us at any time. For
instance, Brian Gast, Leonard Allsup, and Bruce Dines have resigned their
officer positions. Messrs. Gast, Allsup and Dines have assisted us in
identifying successors and are participating in an orderly transition process.
In addition, Messrs. Gast and Allsup will continue to serve as directors until
June 30, 2000. We also do not have "key person" life insurance policies on any
of our employees. If any of our key employees left or was seriously injured and
unable to work and we were unable to find a qualified replacement, our business
could be harmed. Our future success also depends on our continuing ability to
identify, attract, motivate and retain highly skilled personnel. We plan to
significantly expand our operations, and we will need to hire additional
personnel as our business grows. The industry in which we compete has a high
level of employee mobility and aggressive recruiting of skilled personnel. We
face intense competition for qualified personnel, particularly in network
engineering, sales and marketing and product development. If we are unable to
continue to employ our key personnel or to attract and retain qualified
personnel in the future our business, prospects, operating results and financial
condition could be materially and adversely affected.
RELIANCE ON LUCENT FOR NETWORK DEPLOYMENT AND MONITORING COULD RESULT IN
SIGNIFICANT DELAYS AND COSTS
We entered into a strategic alliance with Lucent to install, integrate,
monitor and maintain our nationwide broadband network. Any failure or inability
by Lucent to perform these functions in a timely manner could cause significant
delays and costs in providing services to our existing and prospective customers
and deploying our network in our target markets. Any such failure could
materially and adversely affect our business, prospects, operating results and
financial condition. In addition, our alliance with Lucent is non-exclusive;
they are providing or may provide similar services to our competitors.
OUR DEPENDENCE ON THIRD PARTIES FOR EQUIPMENT, INSTALLATION AND PROVISION OF
FIELD MAY EXPOSE US TO SUPPLY AND OTHER INTERRUPTIONS
We currently plan to purchase all of our equipment from a number of vendors
and outsource substantially all of the installation and field service of our
networks to third parties, principally Lucent. Our reliance on third party
vendors involves a number of risks, including the absence of guaranteed capacity
and reduced control over delivery schedules, quality assurance, production
yields and costs. If any of our suppliers reduces or interrupts its supply, or
if any significant installer or field service provider interrupts its service to
us, this reduction or interruption could disrupt our business. Our suppliers may
be unable to manufacture and deliver the amount of equipment we order, or the
available supply may be insufficient to meet our demand. If our suppliers or
licensors enter into competition with us, or if our competitors enter into
exclusive or restrictive arrangements with the suppliers or licensors, then
these events may materially and adversely affect the availability and pricing of
the equipment we purchase.
10
<PAGE>
WE COULD BE ADVERSELY AFFECTED BY A NETWORK FAILURE
Our success will depend upon the capacity, reliability and security of our
network. Our failure to maintain and expand our network infrastructure on a
timely basis or adapt it to either changing customer requirements or evolving
industry standards could have a material adverse effect on our business,
prospects, operating results and financial condition. Because we expect that a
substantial portion of our future revenues will be derived from providing
tailored applications and services to our customers, we must continue to expand
and adapt our network infrastructure as the number of end users and the amount
of information they wish to transfer increase and as customer requirements
change. If end user demand evolves to favor higher downstream transmission
speeds than those we currently offer, we cannot be sure that we will be able to
expand or adapt our network infrastructure to meet this additional demand or our
customers' changing requirements on a timely basis, at a commercially reasonable
cost, or at all.
INTERFERENCE OR CLAIMS OF INTERFERENCE COULD DELAY OUR NETWORK DEPLOYMENT OR
HARM OUR SERVICES
All transport technologies deployed on copper telephone lines have the
potential to interfere with, or to be interfered by, other transport
technologies on the copper telephone lines. We believe that our DSL
technologies, like other transport technologies, do not interfere with existing
voice services. There are several initiatives underway to establish national
standards and principles for the deployment of DSL technologies. We believe that
our technologies can be deployed consistently with these evolving standards.
Nevertheless, incumbent carriers may claim that the potential for interference
permits them to restrict or delay our deployment of DSL services. Interference
could degrade the performance of our services or make us unable to provide
service on selected lines. The procedures to resolve interference issues between
competitive carriers and incumbent carriers are still being developed, and these
procedures may not be effective. We may be unable to successfully negotiate
interference resolution procedures with incumbent carriers. Moreover, incumbent
carriers may make claims regarding interference or unilaterally take action to
resolve interference issues to the detriment of our services. State or federal
regulatory bodies could also institute responsive actions. Interference, or
claims of interference, if widespread, would adversely affect our speed of
deployment, reputation, brand image, service quality and customer satisfaction
and retention.
UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON OUR SERVICES MAY
INCREASE OUR PAYMENT OBLIGATIONS
Telecommunications providers pay a variety of surcharges and fees on their
gross revenues from interstate and intrastate services. The division of our
services between interstate and intrastate services is a matter of
interpretation, and in the future the FCC or relevant state commission
authorities may contest this division. A change in the characterization of the
jurisdiction of our services could cause our payment obligations to increase. In
addition, pursuant to periodic revisions by state and federal regulators of the
applicable surcharges, we may be subject to increases in the surcharges and fees
currently paid.
CLAIMS AGAINST US ALLEGING OUR INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL
PROPERTY COULD RESULT IN SIGNIFICANT EXPENSE TO US AND RESULT IN OUR LOSS OF
SIGNIFICANT RIGHTS
We rely on a combination of licenses, confidentiality agreements and other
contracts to establish and protect our intellectual property rights. We have
applied for service marks on certain terms and symbols that we believe are
important for our business. We currently have no patents or patent applications
pending. The steps we have taken may be inadequate to protect our technology or
other intellectual property. Third parties may assert infringement claims
against us and, in the event of an unfavorable ruling on any claim, we may be
unable to obtain a license or similar agreement to use intellectual property we
rely upon to conduct our business. In addition, these claims may divert
11
<PAGE>
management's attention and be costly to defend. We also rely on unpatented trade
secrets and know-how to maintain our competitive positions, which we seek to
protect, in part, by confidentiality agreements with employees, consultants and
others. However, these agreements may be breached or terminated, and we may not
have adequate remedies for any breach. In addition, our competitors may
otherwise learn or discover our trade secrets. Our management personnel were
previously employees of other telecommunications companies. In many cases, these
individuals are conducting activities for us in areas similar to those in which
they were involved prior to joining us. As a result, we or our employees could
be subject to allegations of violation of trade secrets and other similar
claims.
A GENERAL ECONOMIC DOWNTURN COULD ADVERSELY IMPACT DEMAND FOR OUR SERVICES
In the last few years the general health of the economy has been relatively
strong and growing, which has led to increased capital spending by individuals
and growing companies to keep pace with rapid technological advances. To the
extent the general economic health of the U.S. declines from recent historically
high levels, or to the extent businesses and individuals fear a decline is
imminent, these businesses and individuals may reduce expenditures for our
services. Any decline or concern about an imminent decline could delay decisions
among certain of our customers to roll out our services or could delay decisions
by prospective customers to make initial evaluations of our services.
CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL
Following the offering, our executive officers, directors and our
stockholders who currently own over five percent of our common stock will, in
the aggregate, beneficially own approximately 46.85% of our outstanding common
stock. These stockholders, if they vote together, will be able to significantly
influence matters that we require our stockholders to approve, including
electing directors and approving significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of Jato, which could result in a lower stock price. See
"Principal and Selling Stockholders" for information about the ownership of
common stock by our executive officers, directors and principal stockholders.
WE FACE RISKS RELATED TO YEAR 2000
Our software and third party hardware and software we use for our internal
systems to run our business may contain undetected errors or defects associated
with Year 2000. If any such errors or defects do exist, we may incur material
costs, which would adversely affect our business.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL
SHARES AT OR ABOVE THE OFFERING PRICE
You should be aware that the stock of companies in our industry have
experienced extreme price and volume fluctuations. The price at which our common
stock will trade will depend upon many factors, including our quarterly and
annual operating results, variations between our actual results and analyst and
investor expectations, announcements by us or others and developments affecting
our business, investor perceptions of our company and comparable public
companies, changes in our industry and general market and economic conditions.
Some of these factors are beyond our control.
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS
We have not paid any dividends, and we do not intend to pay cash dividends
in the foreseeable future. Our current financing documents contain provisions
which restrict our ability to pay dividends.
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<PAGE>
CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Some of the provisions that will be included in our restated certificate of
incorporation and bylaws may discourage, delay or prevent a merger or
acquisition at a premium price. These provisions include:
- authorizing the issuance of "blank check" preferred stock;
- providing for a classified Board of Directors with staggered, three-year
terms and limiting the removal of directors by the stockholders to removal
for cause;
- eliminating the ability of stockholders to act by written consent in lieu
of a stockholder meeting or to call a special meeting of stockholders;
- requiring a super-majority stockholder vote to effect certain amendments;
and
- requiring advance notice of stockholder proposals and stockholder
nominations of directors.
In addition, certain provisions of the Delaware General Corporation Law may
deter someone from acquiring or merging with us, including a transaction that
results in stockholders receiving a premium over the market price for the shares
of common stock held by them. Section 203 of the Delaware General Corporation
Law also imposes certain restrictions on mergers and other business combinations
between us and any holder of more than 15% and less than 85% of our common
stock. See "Description of Capital Stock -- Possible Anti-Takeover Matters."
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could adversely affect the market price for the common stock. The number
of shares of common stock available for sale in the public market will be
limited by lock-up agreements under which the holders of substantially all of
our outstanding shares of common stock and options and warrants to purchase
common stock will agree not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this prospectus without the prior
written consent of Merrill Lynch & Co. However, Merrill Lynch & Co. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. In addition to the adverse effect
a price decline could have on holders of common stock, that decline would likely
impede our ability to raise capital through the issuance of additional shares of
common stock or other equity securities. See "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK VALUE
Because our common stock has in the past been sold at prices substantially
less than the public offering price that you will pay, you will incur immediate
and substantial dilution of $10.72 in the net tangible book value per share of
the common stock from the price you pay for the common stock in this offering.
MANAGEMENT HAS BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING
Our management will have broad discretion over the use of proceeds we raise
in this offering, and you must rely on the judgment of management in the
application of our net offering proceeds. See "Use of Proceeds."
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about Jato, including, among other things:
- Our anticipated growth strategies;
- Our intention to introduce new applications and services;
- Our future expenditures for network deployment;
- Our ability to continue to control costs and maintain quality; and
- Anticipated trends in our business, including trends in technology
and the growth of broadband applications and services.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur. Our actual
results could differ materially from those discussed in these statements.
Factors that could contribute to such differences include, those discussed in
"Risk Factors," "Business," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this prospectus.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 8,925,000 shares of
common stock in this offering will be approximately $114.5 million, or
approximately $120.9 million if the underwriters' over-allotment option is
exercised in full, based upon an assumed initial public offering price of
$14.00 per share, after deducting underwriting discounts and commissions and
estimated expenses payable by us. Of the 1,338,750 shares to be sold if the
underwriters' over-allotment option is exercised in full, we will sell 492,590
shares and the selling stockholders will sell 846,160 shares (based on an
assumed initial public offering price of $14.00 per share). We will not receive
any of the proceeds of the shares sold by the selling stockholders upon the
exercise of the underwriters' over-allotment option. Please see "Principal and
Selling Stockholders" for a description of the allocation of the shares to be
sold by the selling stockholders in this offering. In addition, we will receive
$2.5 million of additional proceeds from the concurrent placement to Qwest.
We expect to use approximately $64.1 million of our net proceeds from this
offering to fund capital expenditures related to the continued deployment of our
network, $30.0 million for the expansion of our sales and marketing activities,
and $22.9 million for working capital and other general corporate purposes.
In particular, we expect to make capital expenditures of approximately
$100 million during 2000 for equipment purchases and expansion of our network.
We expect to require additional financing to fund our capital expenditures and
operating losses in the future. The amounts we actually expend in such areas may
vary significantly and will depend on a number of factors, including our future
revenues. Accordingly, management will retain broad discretion in the use of the
net proceeds of this offering. You will not have the opportunity to evaluate the
economic, financial or other information on which we base our decisions on how
to use the proceeds. Pending such uses, the net proceeds of this offering will
be invested in short term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements, covenants
in our debt instruments and such other factors as the board of directors deems
relevant. In addition, our current financing documents restrict our ability to
pay dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the receipt of proceeds of
$25 million for our sale of 4,464,285 shares of Series D preferred stock
at a price of $5.60 per share in January and February 2000 and the
exercise of warrants to purchase 28,140 shares of common stock for
$60,000; and
- on a pro forma and as adjusted basis to reflect the automatic conversion
of all of the outstanding shares of our preferred stock, the receipt of
the estimated net proceeds from the sale of common stock offered by us in
this offering, after deducting estimated underwriting discounts and
estimated offering expenses payable by us and the receipt of the net
proceeds from the sale of 178,571 shares of our common stock (based on an
assumed initial public offering price of $14.00 per share) to Qwest at an
aggregate purchase price of $2.5 million in the concurrent placement.
You should read this table in conjunction with our consolidated financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------
PRO FORMA
AS
ACTUAL(1) PRO FORMA ADJUSTED
--------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $15,017 $40,077 $157,081
======= ======= ========
DEBT:
Long-term debt.............................................. $16,868 $16,868 $ 16,868
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.01 par value, 1,751,985 shares
authorized actual and pro forma and no shares authorized
pro forma as adjusted; 1,751,985 shares issued and
outstanding actual and pro forma and no shares issued and
outstanding pro forma as adjusted......................... 1,301 1,301 --
Series B preferred stock, $.01 par value, 13,615,322 shares
authorized actual and pro forma and no shares authorized
pro forma as adjusted; 13,615,322 shares issued and
outstanding actual and pro forma and no shares issued and
outstanding pro forma as adjusted......................... 20,174 20,174 --
Series C preferred stock, $.01 par value; 8,550,000 shares
authorized actual, 4,932,308 shares authorized pro forma
and no shares authorized pro forma as adjusted; 4,932,308
shares issued and outstanding actual and pro forma and no
shares issued and outstanding pro forma as adjusted....... 27,561 27,561 --
Series D preferred stock, $.01 par value, no shares
authorized actual, 5,000,000 shares authorized pro forma,
and no shares authorized pro forma as adjusted; no shares
issued and outstanding actual, 4,464,285 shares issued and
outstanding pro forma and no shares issued and outstanding
pro forma as adjusted..................................... -- 25,000 --
Common stock, $.01 par value, 80,000,000 shares authorized
actual and pro forma and pro forma as adjusted; 9,564,524
shares issued and outstanding actual; 9,592,664 shares
issued and outstanding pro forma and 53,539,040 shares
issued and outstanding pro forma as adjusted.............. 96 96 535
Additional paid-in capital.................................. 14,967 15,027 205,628
Deferred compensation....................................... (13,735) (13,735) (13,735)
Accumulated deficit......................................... (15,256) (15,256) (15,256)
------- ------- --------
Total stockholders' equity................................ 35,108 60,168 177,172
------- ------- --------
Total capitalization.................................... $51,976 $77,036 $194,040
======= ======= ========
</TABLE>
- ------------------------------
(1) The number of shares of common stock in this table excludes:
- 7,035 shares of common stock subject to issuance upon exercise of warrants
outstanding as of December 31, 1999, all of which will expire if not
exercised prior to the closing of this offering;
- 5,733,455 shares of common stock issuable upon exercise of options
outstanding under our 1998 equity incentive plan as of December 31, 1999;
and
- 297,619 shares of common stock (based on an assumed initial public
offering price of $14.00 per share) subject to issuance upon exercise of
the warrant issuable to Qwest at the concurrent placement for an aggregate
exercise price of $5.0 million.
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DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $1.37 per
share. Pro forma net tangible book value represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding after giving effect to the issuance of the Series D preferred stock,
the conversion of all outstanding shares of preferred stock into common stock,
the issuance of 28,140 shares of common stock (based on an assumed initial
public offering price of $14.00 per share) pursuant to the exercise of a warrant
and the issuance of 178,571 shares of common stock (based on an assumed initial
public offering price of $14.00 per share) to Qwest in the concurrent placement.
Without taking into account any other changes in the net tangible book value
after December 31, 1999, other than to give effect to our receipt of the net
proceeds from the sale of the 8,925,000 shares of common stock in this offering
and the sale of the 178,571 shares of common stock (based on an assumed initial
public offering price of $14.00 per share) to Qwest in the concurrent placement,
our pro forma net tangible book value as of December 31, 1999 would have been
approximately $175.5 million or $3.28 per share. This represents an immediate
increase in net tangible book value of $1.91 per share to existing stockholders
and an immediate dilution of $10.72 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $ 14.00
Pro forma net tangible book value per share at
December 31, 1999..................................... 1.37
Increase per share attributable to new investors........ 1.91
-------
Pro forma net tangible book value per share after this
offering................................................ 3.28
-------
Dilution per share to new investors(1).................... $ 10.72
=======
</TABLE>
- ------------------------
(1) If the underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $10.63.
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between existing stockholders and the new investors with
respect to:
- the number of shares of common stock purchased from us, after giving
effect to the issuance of the Series D preferred stock and assuming
conversion of all outstanding shares of preferred stock into common stock,
the issuance of 28,140 shares of common stock (based on an assumed initial
public offering price of $14.00 per share) pursuant to the exercise of a
warrant and the issuance of 178,571 shares of common stock (based on an
assumed initial public offering price of $14.00 per share) to Qwest in the
concurrent placement for an aggregate purchase price of $2.5 million;
- the total consideration paid to us; and
- the average price per share existing stockholders and new investors pay
when they buy common stock in this offering before deduction of estimated
underwriting discounts and offering expenses.
17
<PAGE>
The calculation in this table with respect to shares to be purchased by new
investors in this offering reflect an assumed initial public offering price of
$14.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 44,614,040 83.3% $ 81,171,000 39.4% $ 1.82
New investors............................... 8,925,000 16.7 124,950,000 60.6 $ 14.00
----------- ------ ------------ ------
Total..................................... 53,539,040 100.0% $206,121,000 100.0%
=========== ====== ============ ======
</TABLE>
(1) Any sale of common shares by Jato's selling stockholders in this offering
will reduce the number of common shares held by existing stockholders to
43,767,880 if the underwriters' over-allotment option is exercised in full
or approximately 81.0%, of the total number of common shares outstanding
upon the closing of this offering, and will increase the number of shares
held by new public investors to 10,263,750 if the underwriters'
over-allotment option is exercised in full or approximately 19.0%, of the
total number of common shares outstanding after this offering.
The foregoing discussion and tables exclude all common stock issuances after
December 31, 1999 and assume no exercise of the underwriters' over-allotment
option or of any outstanding stock options after December 31, 1999. As of
December 31, 1999, there were outstanding options to purchase an aggregate of
5,733,455 shares of common stock at a weighted average exercise price of $1.95
per share. There will be further dilution to new investors to the extent any of
these options are exercised.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
our audited financial statements and notes. The consolidated financial
statements are included elsewhere in this prospectus. You should read the
following data together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -----------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $-- $ 315
Operating Expenses:
Network and service costs................................. -- 1,170
Marketing expenses........................................ -- 1,919
Selling, general and administrative....................... 404 11,152
Amortization of deferred compensation..................... -- 843
Depreciation and amortization............................. 1 469
------ --------
Operating loss.............................................. (405) (15,238)
Interest income............................................. 9 378
------ --------
Net loss.................................................... $ (396) $(14,860)
====== ========
Net loss per common share (basic and diluted)............... $(0.05) $ (1.64)
Shares used in computing net loss per share................. 8,266 9,053
Unaudited pro forma net loss per common share (basic and
diluted)(1)............................................... $(0.04) $ (0.64)
Shares used in computing pro forma net loss per share....... 9,036 23,099
OTHER FINANCIAL DATA:
EBITDA(2)................................................... $ (404) $(13,926)
Capital expenditures........................................ 58 21,156
Net cash flows from:
Operating activities...................................... (123) (10,906)
Investing activities...................................... (85) (22,161)
Financing activities...................................... 1,478 46,814
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA(3):
Cash and cash equivalents................................... $15,017 $40,077 $157,081
Property and equipment, net................................. 37,463 37,463 37,463
Total assets................................................ 55,591 80,651 197,655
Total liabilities........................................... 20,483 20,483 20,483
Deferred compensation....................................... (13,735) (13,735) (13,735)
Accumulated deficit......................................... (15,256) (15,256) (15,256)
Total stockholders' equity.................................. 35,108 60,168 177,172
</TABLE>
- ------------------------------
(1) Unaudited pro forma net loss per share gives effect to the automatic
conversion of the preferred stock into common stock, which will occur upon
the closing of this offering.
(2) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization of capital assets, and amortization of deferred compensation.
We believe that EBITDA is a measure of financial performance commonly
employed in the telecommunications industry, and is useful to investors and
analysts as an indicator of a company's ability to fund its operations and
to service or incur debt. Conversely, negative EBITDA implies that a company
is not currently generating sufficient income to fund its operations or
service its debt. EBITDA is not a measure calculated under generally
accepted accounting principles. Other companies may calculate EBITDA
differently from us; consequently, our calculation of EBITDA may not be
comparable to other companies' calculations of EBITDA. EBITDA is not an
alternative to operating income as an indicator of operating performance or
an alternative to cash flows from operating activities as a measure of
liquidity, and investors should consider these measures as well.
In particular, EBITDA differs significantly from cash flows from operating
activities reflected in the consolidated statements of cash flows. Cash from
operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash (vs. accrual)
basis, exclusive of non-cash items of income and expenses such as
depreciation and amortization. In contrast, EBITDA is derived from accrual
basis income and is not reduced for cash invested in working capital.
Consequently, EBITDA is not affected by the timing of receivable collections
or when accrued expenses are paid.
(3) The pro forma balance sheet information reflects the issuance of 4,464,285
shares of Series D preferred stock and the exercise of warrants to purchase
28,140 shares of common stock for $60,000. In addition, the pro forma as
adjusted balance sheet information reflects the automatic conversion of the
preferred stock, the receipt of the estimated net proceeds from the sale of
common stock in this offering offered by us, after deducting estimated
underwriting discounts and estimated offering expenses payable by us and the
receipt of the estimated net proceeds from the sale of common stock to Qwest
in the concurrent placement.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In the discussion below, we refer to the
period from June 12, 1998 (date of inception) to December 31, 1998 as "1998."
OVERVIEW
We provide broadband data network applications and services to small- and
medium-sized businesses in our target secondary markets. We initiated our
service in June 1999. As of January 31, 2000, we provided services in four
markets and had collocated our equipment in six additional markets. We intend to
expand our services into a total of 40 markets nationwide by the end of 2000 and
expect to offer services in all 50 of our targeted secondary markets by the
middle of 2001.
Since inception on June 12, 1998, our principal activities have included:
- obtaining required state and federal governmental authorizations;
- negotiating and entering into interconnection agreements with incumbent
carriers;
- acquiring collocation space and deploying our network equipment;
- identifying, pursuing and negotiating agreements with potential strategic
partners;
- developing criteria for market selection and analyzing potential markets
against these criteria;
- refining our customer targeting parameters;
- launching service in target markets;
- selling and marketing our applications and services;
- hiring management and other personnel;
- raising capital; and
- developing and implementing our operations support system and other back
office systems.
We have incurred operating losses, net losses and negative earnings before
interest, taxes, depreciation and amortization, or EBITDA, during each month
since June 12, 1998. As of December 31, 1998 and 1999, we had an accumulated
deficit of $396,000 and $15.3 million, respectively. We intend to substantially
increase our capital expenditures and will incur materially higher operating
expenses in an effort to rapidly deploy our network and introduce our
applications and services. We expect to incur substantial operating losses, net
losses and negative EBITDA as we expand our operations.
We incur significant network and operations expenses, sales and marketing
expenses and capital expenditures when we enter a new market. Once we have
deployed our network in a market, the majority of our additional expenditures
depend on orders to connect new end users. These additional expenditures
primarily include DSL line cards, incremental digital subscriber line access
multiplexers, or DSLAMs, and customer premise equipment, or CPE. In addition to
the capital expenditures required to enter a market, we will be required to fund
each market's cash flow deficit as we build our customer base.
As a result of recent stock and option grants, there will be significant
charges to earnings in future periods. As of December 31, 1999, Jato had
recorded $13.7 million of unamortized deferred compensation. Such amount will be
charged to earnings over the next several years. Further, we
20
<PAGE>
anticipate recording additional deferred compensation during the first quarter
of 2000 related to stock option grants during that period.
FACTORS AFFECTING FUTURE OPERATIONS
REVENUES. Initially, we expect to derive a majority of our revenues from
broadband connectivity and communications services. Currently, we offer our
services through our ISP and value added reseller customers directly to the end
user. We bill these customers in advance for monthly recurring charges based on
the data transfer speeds selected by the end user. We currently offer flat rate
plans at wholesale prices for our high-speed access and connectivity services.
We expect to offer our services directly to end users at retail prices in the
future. These monthly fees will include charges for high-speed access and
connectivity, Internet access and applications and services we provide. In
addition to monthly service fees, end users are billed for nonrecurring service
activation, CPE and installation charges. To encourage potential customers to
adopt our services, we may offer reduced monthly prices for an initial period of
time or reduced service activation, CPE, or installation charges. We expect
that, as a result of competition, prices for our services will decline over
time.
As our business develops and we begin to offer additional applications and
services, we expect to become less dependent on access and broadband
connectivity revenues. By providing network-enabled applications, we expect to
enhance our overall gross margins by adding additional revenues without
incurring incremental fixed costs. We also believe that these additional
services will enable us to build customer loyalty and effectively minimize
customer turnover, or "churn."
We seek to price our services competitively in relation to those of the
incumbent carriers and other competitive carriers in each market. Current
standard line prices that we charge to our wholesale customers for our services
generally range from $70 per month for 144 Kbps service to $195 per month for
1.5 Mbps service before any discounts. During the past several years, market
prices for many telecommunications services have been declining. Therefore, we
anticipate prices for our services to decrease each year. As prices decline for
any given speed of service, we expect that the total number of end users and the
proportion of our end users purchasing our higher-speed, higher-priced services
will increase. Our incremental cost to upgrade an end user's speed is generally
minimal.
Our future financial performance and our ability to achieve positive
operating cash flow, if ever, will depend on a number of factors, some of which
we cannot control. We believe that improvements in our financial performance
depend largely on our ability to:
- rapidly and cost-effectively deploy our network, including collocating our
equipment in numerous central office facilities;
- provide high quality services at competitive prices;
- offer additional applications;
- acquire customers in a cost-effective manner through direct and indirect
sales channels;
- attract qualified personnel, particularly in sales and marketing;
- minimize customer turnover;
- retain installation and wiring contractors to install equipment and wiring
at customer premises on a timely and cost-effective basis;
- cost-effectively manage increased selling, marketing, general and
administrative expenses; and
- indentify and integrate the necessary administrative and operations
support systems to effectively manage our growth.
21
<PAGE>
NETWORK AND SERVICE COSTS. Our network expenses consist of nonrecurring and
monthly recurring charges for the transport elements we choose to lease rather
than own. We expect that these costs will increase significantly in the future.
Nonrecurring network expenses include installation fees related to transport and
local loop circuits. We expect these costs will be largely related to the
activation of new central offices and new end users. Monthly recurring network
expenses include transport fees, facility rent, power, license fees for
applications and other fees charged by incumbent carriers, competitive carriers
and other providers. Additionally, we pay monthly network maintenance and
monitoring fees to Lucent. As our end user base grows, we expect the largest
element of network expenses to be incumbent carrier charges for leased copper
lines, which are typically approximately $20 per line per month, depending on
the identity of the incumbent carrier and the location of the lines.
MARKETING EXPENSES. Our marketing expenses consist primarily of expenses
related to the development of our brand name, promotional materials and
advertising. We expect that our marketing expenses will grow significantly as we
enter new markets and offer our services on a nationwide basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our general and
administrative expenses consist primarily of costs related to personnel,
customer service, finance, administrative services, recruiting and legal
services. We expect that our selling and marketing costs will grow significantly
as we expand our operations. However, we expect these expenses to decline as a
percentage of our revenue as we build our customer base and the number of end
users connected to our network increases.
To attract and retain a highly qualified sales force, we plan to offer our
sales personnel a compensation package consisting of a base salary plus
commissions and stock options. We currently incent our sales personnel with
commissions based on the number of lines sold. Previously earned commissions are
reduced as a result of customer turnover.
AMORTIZATION OF DEFERRED COMPENSATION. Deferred compensation arose as a
result of granting stock awards to employees with purchase or exercise prices
per share subsequently determined to be below the deemed fair values per share
for financial reporting purposes of our common stock at the purchase or grant
dates. The deferred compensation is being amortized over the applicable vesting
period (generally 4 years).
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses include:
- depreciation of network equipment;
- depreciation of furniture, fixtures, computers and equipment; and
- amortization of collocation costs.
We expect depreciation and amortization expense to increase significantly as
more of our network becomes operational and as we increase capital expenditures
to expand our operations. Depreciation is computed on a straight-line basis over
estimated useful lives ranging from three to seven years.
INTEREST EXPENSE. We expect interest expense to increase substantially as
we borrow funds under our credit facility with Lucent.
TAXATION. We have not generated any taxable income to date and therefore
have not paid any federal income taxes since inception. We expect to generate
significant operating loss carryforwards. Use of our net operating loss
carryforwards may be subject to limitations under Section 382 of the Internal
Revenue Code of 1986, as amended. We have recorded a full valuation allowance on
our deferred tax asset, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding its recoverability.
22
<PAGE>
RESULTS OF OPERATIONS
REVENUES. We first introduced services in June 1999 and recognized $315,000
of revenue for the year ended December 31, 1999. As of December 31, 1999, we had
approximately 550 installed DSL lines. Average monthly recurring revenue per
installed line for the period approximated $80. As of December 31, 1999, we had
over 900 lines sold that were pending installation. We expect revenues to
increase rapidly as our installed subscriber base increases. Initially, we will
derive a majority of our revenue from DSL access and connectivity services. In
the future, we expect to supplement our transport revenues by providing
applications and services to our customers.
NETWORK AND SERVICE COSTS. We did not incur any network and service costs
during 1998. For the year ended December 31, 1999, network and service costs
totaled $1.2 million.
MARKETING EXPENSES. Marketing expenses totaled $1.9 million for the year
ended December 31, 1999 and principally related to launch of our service in our
initial markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1998 and for the year ended December 31, 1999 were
approximately $404,000 and $11.2 million, respectively. This increase was
primarily due to increases in our personnel.
AMORTIZATION OF DEFERRED COMPENSATION. No amortization of deferred
compensation was recognized in 1998. For the year ended December 31, 1999,
amortization of deferred compensation was $843,000. The unamortized balance of
$13.7 million at December 31, 1999 will be amortized over the vesting period of
each grant, which is generally four years.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses in 1998 and for the year ended December 31, 1999 were approximately
$1,000 and $469,000, respectively.
INTEREST EXPENSE (INCOME) AND OTHER INCOME, NET. Net interest income and
other income, net, for 1998 and for the year ended December 31, 1999 was
approximately $9,000 and $378,000 respectively, and was primarily related to
interest earned on invested balances.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had an accumulated deficit of approximately
$15.3 million and cash and cash equivalents of approximately $15.0 million.
During 1998 and for the year ended December 31, 1999, the net cash used in our
operating activities was approximately $123,000 and $10.9 million, respectively.
This cash was used for a variety of operating purposes, including personnel
costs, consulting and legal expenses, network operations and other
administrative expenses. The net cash used in investing activities during 1998
and for the year ended December 31, 1999 was approximately $85,000 and
$22.2 million, respectively, and was used primarily for the payment of
collocation costs and the purchase of networking and other equipment. Net cash
provided by financing activities in 1998 and for the year ended December 31,
1999 was approximately $1.5 million and $46.8 million, respectively, and
primarily resulted from the sale of common and preferred stock.
The development and expansion of our business will require significant
capital expenditures. The principal capital expenditures incurred to enter each
market include the procurement, design and construction of collocation space,
and the purchase and installation of all necessary telecommunications equipment.
The number of central offices that we expect to target in a market will
vary, as will the average capital cost in a given market. Capital expenditures,
exclusive of $16.9 million funded by the Lucent credit facility, including
collocation fees, were approximately $58,000 and $21.2 million in 1998 and for
the year ended December 31, 1999, respectively. We expect to make capital
expenditures of approximately $100 million in 2000.
23
<PAGE>
From inception through December 31, 1999, we raised $49 million in equity
from a group of investors that includes ABN-AMRO, CEA Capital, Crest
Communications, Hambrecht & Quist, Mayfield Fund and TCI Satellite
Entertainment. Subsequent to December 31, 1999, we have raised an additional
$25 million in invested equity from Global Crossing, Microsoft and Qwest.
In July 1999, Jato Operating Corp., a wholly-owned subsidiary, entered into
a senior secured credit facility with Lucent that provides up to $50 million of
vendor financing for equipment and network services provided by Lucent and
certain other third party vendor equipment utilized in Jato's DSLAM and
switching center. The facility is fully and unconditionally guaranteed by Jato,
and each direct or indirect subsidiary of Jato Operating Corp. Borrowings under
the facility are available in two separate tranches. The first tranche of
$30 million is available through July 2001. The second tranche of $20 million
becomes available upon the full utilization or expiration of the first tranche
and must be utilized by July 2002. Borrowings under the senior secured credit
facility are restricted based upon the company's leverage ratio and
capitalization. Commencing September 30, 2002, principal repayment installments
are required in accordance with a schedule, until final maturity on May 31,
2006. Borrowings under the facility bear interest at the rate of LIBOR plus 4.5%
per year or an alternative base rate, which is generally equal to the greater of
3.5% over the prime rate or 4% over the federal funds rate per year. The
facility is secured by liens against certain network equipment and imposes
certain financial and other covenants. As of December 31, 1999, we had drawn
down $16.9 million under the Lucent credit facility at an interest rate of
10.625%.
We believe that the net proceeds from this offering, together with our
existing cash balances, amounts raised in the first quarter of 2000 from Global
Crossing, Microsoft and Qwest, the funds to be received from Qwest in the
concurrent placement and amounts available under our credit facility, will be
sufficient to fund our operating losses, capital expenditures, lease payments
and working capital requirements through November 2000. We expect our operating
losses and capital expenditures to increase substantially as we expand our
network. We expect that additional financing will be required in the future. We
may attempt to finance our future capital needs through some combination of
commercial bank borrowings, leasing, vendor financing and the sale of additional
equity or debt securities.
Our capital requirements will vary based upon the timing and the success of
implementation of our business plan and as a result of regulatory, technological
and competitive developments or if:
- demand for our services or our cash flow from operations varies from
projections;
- our development plans or projections change or prove to be inaccurate;
- we make any acquisitions; or
- we accelerate deployment of our network or otherwise alter the schedule or
targets of our business plan implementation.
We will be required to raise additional capital to complete our network
deployment. There can be no assurance that additional capital will be available
on terms acceptable to us, or at all. While we would be able to sustain some
level of operations throughout all of 2000 absent additional capital, including
the proceeds from this offering, we would be required to significantly scale
back our operations and delay the expansion of our network. This would have a
material adverse effect on our business, financial condition and results of
operations.
As of December 31, 1999, we had not entered into any financial instruments
that expose us to material market risk.
THE YEAR 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit
24
<PAGE>
entries needed to be upgraded in order to accept dates beginning January 1,
2000. We did not experience any date related problems with our software or third
party software and hardware we use for our internal systems. In addition, we
have not been made aware of, nor have we experienced, date related problems with
any third party software. We do not believe that we will incur material costs in
the future because of date related problems.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which provides guidance that requires
capitalization of certain costs incurred during an internal-use software
development project. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The adoption of this policy has not had a material effect on
our results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We have not
capitalized any such costs to date. Accordingly, the adoption of SOP 98-5 has
not had an impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives and hedging
activities. Among other things, this statement requires that an entity recognize
all derivative instruments on the balance sheet as either assets or liabilities,
and to account for those instruments at fair value. SFAS No. 133 must be applied
to financial statements no later than the first fiscal quarter of 2001. The
Company does not believe adoption of SFAS No. 133 will have a material impact on
its financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the first fiscal quarter of 2000. The Company does not believe
application of SAB 101 will have a material impact on its financial position or
results of operations.
25
<PAGE>
BUSINESS
OVERVIEW
We provide broadband network connectivity, which is the ability to rapidly
transport high quantities of data between multiple end users, and associated
applications and services to small- and medium-sized businesses in our target
secondary markets. We are developing a secure nationwide network that will allow
us to tailor our broadband solutions to meet the needs of our business
customers. We offer high-speed Internet access together with a suite of
applications including web hosting, e-mail and e-commerce services. Digital
subscriber line, or DSL technology, which utilizes standard copper telephone
lines, is our primary high-speed connection platform. In order to maximize our
service coverage area, we intend to use a variety of broadband local access
technologies in our target markets.
We intend to exploit our advantage as an early entrant in secondary markets
to become a leading provider of network enabled applications and services. We
plan to rapidly deploy our network nationwide in markets that we believe are
presently underserved. In order to establish a direct customer relationship, we
market our applications and services primarily through direct sales channels
including account managers, telesales personnel and specialized account groups.
In addition, we supplement our direct sales efforts through strategic
partnerships with ISPs and value added resellers. We believe our tailored
solutions and direct sales approach, combined with our broadband network will
allow us to attract and retain high value data-centric customers. As of
January 31, 2000, we had approximately 725 lines in service and we were under
contract to supply over 1,100 additional lines to our customers.
We began offering commercial services in June 1999 and, as of January 31,
2000, we provided our services in four markets and had collocated our equipment
in six additional markets. We intend to offer our services in a total of 40
markets nationwide, comprised of 120 cities, by the end of 2000 and expect to
offer services in all 50 of our targeted secondary markets by the middle of
2001. As of January 31, 2000, we had collocated our network equipment in over
160 incumbent carrier central offices and expect to be in approximately 850
central office locations by the end of 2000. We have obtained competitive
carrier certification in 44 states and expect to have competitive carrier
certification in all 48 contiguous states by the end of the first half of 2000.
To date, we have signed interconnection agreements with Ameritech, BellSouth,
Pacific Bell, Southwestern Bell and U S WEST, and expect to execute
interconnection agreements covering substantially all of our target markets by
the end of the first quarter 2000.
We have entered into a strategic alliance with Lucent Technologies to
install, integrate, monitor and maintain our nationwide network. Lucent will
also provide $50 million in vendor financing for our network related
expenditures as well as financial support to market co-branded products and
services. We believe this strategic alliance will allow us to rapidly deploy our
network and introduce our applications and services on a national scale.
We also have recently entered into strategic relationships with Qwest, and
Microsoft and Global Crossing. As part of these strategic relationships, we
received equity investments of $10 million each from Qwest and Microsoft and $5
million from Global Crossing. In addition, Qwest has agreed to purchase 178,571
shares of our common stock (based on an assumed initial public offering price of
$14.00 per share) having an aggregate purchase price of $2.5 million and we have
agreed to issue to Qwest a warrant to purchase 297,619 shares of our of common
stock (based on an assumed initial public offering price of $14.00 per share)
having an aggregate exercise price of $5.0 million at the concurrent placement.
We also have entered into commercial arrangements with Qwest which provide for
the purchase from Qwest of large-scale transport services, with Microsoft to
utilize Microsoft products to create a variety of ASP services and with Global
Crossing to provide a variety of IP services.
26
<PAGE>
Our senior management team has extensive experience in broadband
communications, next generation data technology and business and consumer
marketing. Our President and CEO, Gerald K. Dinsmore, was previously a senior
executive with GTE serving as president of GTE's Business Development and
Integration Group. Mr. Dinsmore has over 23 years of experience in data
networking and telecommunications. William D. Myers, our CFO, has held several
senior executive positions with Tele-Communications, Inc., most recently as Vice
President and Treasurer of TCI Satellite Entertainment/PrimeStar. Terri L.
Compton, our Executive Vice President--Operations and Chief Operating Officer
has held several senior executive positions at GTE. Rex A. Humston, our Senior
Vice President, Engineering and Chief Technology Officer, has previously held
senior executive positions with several telecommunications companies. To date,
in addition to the $50 million provided by Lucent, we have raised $74 million in
equity from a group of investors that includes the following entities or their
affiliates: ABN-AMRO, CEA Capital, Crest Communications, Global Crossing,
Hambrecht & Quist, Mayfield Fund, Microsoft, Qwest, and TCI Satellite
Entertainment.
MARKET OPPORTUNITY
We believe that we have a significant business opportunity as a result of
the following factors:
SIGNIFICANT AND GROWING DEMAND FOR HIGH-SPEED CONNECTIVITY AMONG SMALL- AND
MEDIUM-SIZED BUSINESSES
Our target customers, which include small- and medium-sized businesses,
professionals working in home offices and telecommuters, are increasingly
demanding high-speed data networking applications and services to remain
competitive. These end users are becoming dependent on high-speed connectivity
to communicate more efficiently with employees, customers and suppliers to
facilitate e-commerce transactions and to access critical information and
business applications. Industry commentators project that the total market for
business Internet access and data networking services will grow from
$3.7 billion in 1998 to approximately $40.3 billion by 2002, which represents a
compounded annual growth rate of 81.7%.
OUR TARGET SECONDARY MARKETS ARE ATTRACTIVE AND UNDERSERVED
Our secondary markets, in the aggregate, encompass approximately
2.8 million businesses and approximately 28 million households. Industry studies
have estimated that approximately 98% of all businesses in our target markets
are small- to medium-sized businesses with fewer than 100 employees. We believe
other broadband communication providers are focusing their deployment efforts on
larger markets, leaving secondary markets with limited broadband communications
alternatives. With less competition, we believe that marketing and
administrative expenses in these secondary markets will be lower than those in
larger primary markets. As a result, we believe these current conditions provide
a significant opportunity to effectively market our bundled suite of
applications and services.
THE GROWTH OF OUTSOURCED DATA NETWORKING SYSTEMS
We believe many small- and medium-sized businesses lack the resources to
properly administer increasingly complex data networking systems. Outsourced
solutions allow these businesses to reduce costs and to focus resources on their
core business activities. Industry sources estimate that spending in the U.S. on
distributed networking, network services and applications will grow from
$54.2 billion in 1998 to $173 billion in 2002.
LIMITATIONS OF EXISTING COMMUNICATIONS ALTERNATIVES
Traditionally, small- and medium-sized businesses have been forced to choose
between low-speed or high cost alternatives for Internet access and data
transport services. According to industry analysts,
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through 1998, dial-up connections and integrated services digital network, or
ISDN, lines represented 93% of all U.S. business Internet access methods, as
measured as a percentage of total circuits. ISDN is a transmission method that
provides circuit-switched access to the public network at speeds of 64 or 128
Kbps for voice, data and video transmission. Market research reports estimate
that slow Internet connections now jeopardize approximately $4.4 billion a year
in online sales. For higher speed transport, these businesses have had to
purchase T1 connections, which provide an "always-on" high-speed digital
transmission link, but are relatively expensive (typically up to $800 per month
depending upon distance and region) and complex to order, install and maintain.
As a result, neither of the traditional low-speed alternatives (dial-up modems
or ISDN lines) nor the relatively expensive T1 services provides small- and
medium-sized businesses with an adequate or cost-effective solution for their
high-speed communications needs.
FAVORABLE REGULATORY ENVIRONMENT CREATED BY THE TELECOMMUNICATIONS ACT OF
1996
The Telecommunications Act of 1996 established a legal framework that
encourages the utilization of incumbent carrier infrastructure to compete with
the incumbent local exchange carriers. The 1996 Telecommunications Act mandates
that incumbent local exchange carriers:
- allow competitive carriers to lease telephone lines on a line-by-line
basis,
- provide space in the incumbent carriers' central offices for competitive
carriers' equipment to connect to the leased lines,
- provide access to backbone fiber networks, and
- provide access to operations support systems to permit competitive
carriers to access customer databases.
Under the 1996 Telecommunications Act, in order to be able to offer long
distance services in their local service area, incumbent carriers must
demonstrate to the satisfaction of state public utilities commissions that they
have permitted competitive access to their local telephone networks. Although
DSL technology predated the 1996 Telecommunications Act, by opening the local
telephone loop to competition, the 1996 Telecommunications Act made it possible
for competitive carriers focused on high-speed data communications to integrate
their equipment and service offering with the public switched telephone network.
OUR SOLUTION
We believe our broadband network services effectively address many of the
unsatisfied data communications needs of small- and medium-sized businesses in
our target secondary markets by offering an attractive combination of service,
quality, performance and price. Our services, which we believe will enable us to
achieve higher penetration in our target markets, achieve higher revenue per
customer and maximize customer retention, consists of:
HIGH-SPEED, COST-EFFECTIVE CONNECTIVITY
We offer our customers high-speed broadband connectivity that is dedicated
and "always-on." These "always on" connections provide customers with the
ability to readily and continuously access the Internet instead of having to
dial into a network for access. We currently utilize a broadband platform that
is DSL based, yet designed to integrate a variety of high-speed local access
technologies. Through our SDSL services we currently offer symmetrical
transmission speeds to and from the end user up to 1.5 Mbps and we have the
capability to provide symmetrical transmission speeds up to 3 Mbps using
standard multiplexing technology. In addition, we expect that evolving
technologies will facilitate even faster transmission speeds. For customers that
subscribe to our 1.5 Mbps service, the transfer rate is
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over 25 times faster than a 56.6 Kbps dial-up modem, at a fraction of the cost
of a dedicated T1 connection.
BROADBAND APPLICATIONS AND SERVICES
We offer a full range of applications and services that are tailored to meet
the needs of small- and medium-sized businesses. In addition to providing
broadband transport, we offer a suite of network-enabled applications and
services, including wide area network, or WAN and regional local area network,
or RLAN networking, high-speed Internet access, e-mail and Web hosting and
authoring services. We also intend to continually upgrade our portfolio of
applications and services as additional applications and features become
available so that we may continue to effectively meet our customers' growing
communication needs.
FOCUS ON THE END USER
We provide our customers with a single point of contact for their
sophisticated data networking and communications needs. Through our
relationships with application developers, we are able to offer our customers a
wide selection of applications and services. In addition, our customer care and
support services form an integral part of our overall package of services. We
believe customer care is especially important to small- and medium-sized
businesses because they typically do not have dedicated internal support staffs
to effectively manage their sophisticated data networking needs. Through our
dedicated customer service group, we provide call center and Internet based
customer care services 24 hours a day, seven days a week.
NATIONWIDE SECURE NETWORK
Our nationwide broadband network enables businesses with multiple sites to
connect their distributed business activities to one central computing location.
We also enable remote local area networks, or RLANs, that tie into corporate
LANs, to service the requirements of the remote telecommuter. Our WANs provide
customers with high-speed, secure and reliable end-to-end connections. Through
our strategic relationships, we will be able to provide our customers with VPN
and other broadband services across multiple cities through a nationwide
network.
FLEXIBILITY AND SCALABILITY
We have designed our network and service offerings to enable customers to
not only purchase the level of service and network performance that meets their
current requirements but also enables them to easily upgrade their service level
as their demand for bandwidth increases. In most cases we can implement customer
bandwidth upgrades remotely, without the need to add additional hardware or to
send a technician to the customer's premises.
OUR STRATEGY
Our objective is to become a leading provider of broadband applications and
services to small- and medium-sized businesses in secondary markets. Our
strategy includes the following key elements:
EXPLOIT EARLY-MOVER ADVANTAGE IN TARGET SECONDARY MARKETS
We believe that by being the first, or one of the first, providers of
broadband applications and services in our target markets, we will not only
encounter less competition but will also be able to capture significant limited
resources, including collocation space, key customer relationships and important
distribution channels. As of January 31, 2000, we provided our services in four
markets and had collocated our equipment in six additional markets. We expect to
offer our services in a total of 50 markets nationwide, comprised of 120 cities,
by the middle of 2001. Through our alliance with Lucent,
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we anticipate being able to rapidly deploy our nationwide, broadband network. We
believe that this alliance will allow us to gain significant time to market
advantages relative to our potential competitors, permitting us to establish
ourselves as the leading provider of broadband connectivity and associated
applications and services in our markets. We also believe that our early entrant
status in our target markets will provide us with inherent pricing flexibility
and lower operating and marketing costs.
DRIVE CUSTOMER ACQUISITION THROUGH DIRECT MARKETING
In marketing our services, we intend to emphasize direct sales through
account managers, telesales personnel and specialized account groups. We expect
our emphasis on direct sales will enable us to quickly establish a branded
presence and achieve significant market penetration in each market that we
enter. By using JatoBridge, our proprietary database marketing system, we can
develop a list of potential customers that is prioritized by characteristics
that indicate a need for bandwidth intensive data communications services and
applications. This allows us to streamline our sales and marketing activities
and to focus our efforts on potential customers with the highest propensity to
purchase broadband services. In addition, we have specialized account groups
that sell into vertical sectors, such as the healthcare, travel, and real estate
businesses, which have growing demands for industry-specific broadband
applications and services. Our indirect sales approach is designed to expand our
distribution capabilities through strategic relationships with ISPs and value
added resellers. We intend to establish mutually beneficial sales and marketing
relationships with these providers that will allow us to accelerate customer
acquisition in our markets. We intend to retain the relationship with our
customers so that we can ensure high quality service, offer new applications and
services as they become available, and enhance brand recognition and loyalty.
OFFER A WIDE ARRAY OF BROADBAND APPLICATIONS AND SERVICES
We seek to provide a superior value proposition to our customers by
partnering with a variety of independent network and application services
providers to offer our customers a wide range of value-added applications as
well as enhanced network solutions. We intend to offer the ability to initiate,
develop and manage Internet-based business operations beginning with services
such as domain name registration, Web site creation, Web hosting and e-commerce.
Our relationships with companies such as Netopia and Network Solutions Inc.
allow us to offer our customers basic applications and services, such as e-mail
and Web hosting and authoring. We believe that our approach of offering a suite
of applications will further differentiate us from our competitors and result in
increased penetration of our target customer base.
PROVIDE SUPERIOR CUSTOMER CARE AND SUPPORT
We believe that customer care is critical to the retention of our target
customers and we intend to further differentiate ourselves from our competition
by developing and implementing state-of-the-art customer support systems and
capabilities. Our dedicated business unit provides order management,
provisioning, customer care, operations support and billing services. We have
designed our provisioning and service systems to enable our customers to be
self-sufficient and yet have rapid access to additional support services, if
needed. Our customer support services are available 24 hours a day, seven days a
week.
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STRATEGIC ALLIANCES
We seek to establish alliances with third parties that allow us to leverage
their individual expertise, and thus enhance our network capabilities. We
anticipate that we will enter into additional strategic alliances with others in
the future. Our current strategic alliances include:
LUCENT TECHNOLOGIES
In July 1999, we entered into a strategic alliance with Lucent Technologies
that includes the following key terms:
- NATIONWIDE NETWORK DEPLOYMENT. Lucent will construct, install and
integrate our network equipment in the central offices of incumbent
carriers.
- VENDOR FINANCING. We have entered into an agreement with Lucent that
provides up to $50 million in vendor financing.
- MARKETING ASSISTANCE. Lucent will provide us financial support to market
co-branded products and services.
- NETWORK MONITORING. Through its nationwide network facilities, Lucent will
provide network monitoring and maintenance services 24 hours a day,
seven days a week.
QWEST COMMUNICATIONS
In February 2000, we entered into a strategic relationship with Qwest to
further enhance our network capabilities, that includes the following key terms:
- QWEST INVESTMENT. Qwest invested $10 million in us in return for shares of
our Series D preferred stock which will convert into 2,512,499 shares of
common stock upon the closing of this offering. As part of this
transaction, Qwest has agreed to standstill agreements restricting its
ability to purchase more than 10% of our outstanding capital stock,
without our consent, for a period of five years. In addition, upon the
closing of the concurrent placement, which will close immediately after
the closing of this offering, Qwest will purchase 178,571 shares of common
stock (based on an assumed initial public offering price of $14.00 per
share) for an aggregate purchase price of $2.5 million. In addition, at
the closing of the concurrent placement, we have agreed to issue Qwest a
warrant for the purchase of 297,619 shares of common stock (based on an
assumed initial public offering price of $14.00 per share) at an aggregate
exercise price of $5.0 million.
- DSL SERVICES. We have been designated as Qwest's preferred provider of
business DSL services in selected cities and central offices. Qwest has
agreed to use its reasonable efforts to sell a minimum of 75,000 business
class DSL lines using Jato DSL facilities over five and one-half years.
Moreover, we have agreed to use our reasonable efforts to supply Qwest
with a minimum of 15,000 lines using Qwest DSL facilities. Both parties
will purchase each line on a one year commitment.
- NETWORK SERVICES. Jato will use Qwest as one of its preferred suppliers of
broadband communications services and large-scale transport services.
- SERVICE AGREEMENT. As part of the commercial relationship, we have agreed
to purchase $25.0 million of these Qwest DSL and network services over
five and one-half years, at an agreed-upon price of $16.0 million,
reflecting the present value of such purchase price, payable to Qwest upon
the closing of the offering.
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MICROSOFT CORPORATION
In January 2000, we entered into a strategic relationship with Microsoft
that includes the following key terms:
- MICROSOFT INVESTMENT. Microsoft invested $10 million in us in return for
shares of our Series D preferred stock which will convert into 2,512,499
shares of common stock upon the closing of this offering.
- ASP SERVICES. As part of the two-year agreement, Jato Communications will
use Microsoft products, such as Microsoft-Registered Trademark- Office,
the Microsoft Outlook-Registered Trademark- messaging and collaboration
client, Site Server Commerce Edition and Microsoft Exchange, to create a
variety of ASP services focused on knowledge management, e-commerce and
line-of-business solutions. In addition, Jato will offer Managed PC
Services, a bundled solution consisting of a combination of hardware,
software and services provided to customers for a monthly fee.
- JOINT MARKETING OF OUR SERVICES. Jato and Microsoft will cooperatively
develop and implement sales and marketing plans for these products.
GLOBAL CROSSING
In February 2000, we entered into a strategic relationship with Global
Crossing to enhance our network capabilities, that includes the following key
terms:
- GLOBAL CROSSING INVESTMENT. Global Crossing invested $5 million in us in
return for shares of our Series D preferred stock which will convert into
1,256,249 shares of common stock upon the closing of this offering. As
part of this transaction, Global Crossing has agreed to standstill
agreements restricting its ability to purchase more than 10% of our
outstanding capital stock, without our consent, for a period of three
years.
- DSL SERVICES. We have been designated as a preferred supplier of Global
Crossing's business DSL services in selected cities and central offices.
Global Crossing is forecasting a volume of 75,000 business-class DSL lines
to be sold in this footprint under this agreement over the next five
years.
- NETWORK SERVICES. Jato will use Global Crossing as its preferred supplier
of IP Plus services.
- SERVICE AGREEMENT. As part of the commercial relationship, we have agreed
to purchase $30 million of IP Plus services, IP Transit, application
hosting services and other applications from Global Crossing over the
six-year term of the agreement.
APPLICATIONS AND SERVICES
A core element of our strategy is the establishment of relationships with
companies that have either developed applications or provide services that meet
the specific needs of small- and medium-sized businesses. Our relationships with
companies such as Global Crossing, Microsoft, Netopia and WebPerfect provide us
the ability to offer our customers a variety of applications and services at
cost-effective prices. Through our two year agreement with Netopia, Netopia has
licensed to us, on a non-exclusive basis, its web site and other e-store
products and services. In addition, Netopia has agreed to create a co-branded
version of its web site and products for hosting web sites which we will offer
to our customers. Our three year agreement with WebPerfect provides for
WebPerfect to create and host a private-label web-based e-mail service that Jato
intends to offer to its customers. We have non-exclusive agreements with these
companies to license and resell their applications or services. We may also
agree to jointly market our services with our partners.
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CURRENT APPLICATIONS AND SERVICES
Our suite of services includes the following:
- BROADBAND SERVICES. Our broadband service provides customers with
high-speed Internet access and other network services. We support a
variety of broadband access speeds that afford our customers a dedicated
and "always on" connection. We supply Internet access through our
relationships with several ISPs.
- WIDE AREA AND REMOTE LOCAL AREA NETWORKS. In each of our markets we offer
wide area network connectivity between distributed customer sites. WANs
provide our customers with a relatively inexpensive dedicated network
through which they can share and exchange data at broadband transmission
speeds. RLANs allow teleworkers to connect to their corporate LAN with a
DSL modem at high transmission speeds.
- WEB HOSTING AND AUTHORING. Our relationship with Netopia allows us to
provide Web hosting and two levels of Web authoring services. The entry
level services allow our customers to utilize a Web site template to
create a basic e-brochure Web site. For our customers who demand extended
Web site capabilities, we are able to offer professional level solutions
to create a fully customized Web site.
- E-COMMERCE. Our Netopia relationship also provides customers desiring to
sell their products and services over the Internet with a more elaborate
Web presence. These additional services include, among others, product
cataloging, online shopping cart capability, credit card transaction
processing, and order fulfillment notification.
- E-MAIL SERVICES. We provide outsourced e-mail services for our customers,
thus allowing them to eliminate the overhead typically associated with
managing in-house e-mail platforms.
EXTENDED APPLICATIONS AND SERVICES
We are continually examining a broad range of additional applications and
services. These future services may include, among others:
- PBX EXTENSION. We believe that an exceptional opportunity exists to
provide our small- and medium-sized business customers the ability to
extend their office PBX, or private branch exchange, phone system to their
workers' offsite locations. This technology would permit us to offer our
customers, over existing copper loops, high-speed data and simultaneous
PBX phone extension services, such as four digit dialing, conference
calling and speed dialing. We expect our customers to be able to reduce
their intra-company long distance telephone charges, increase their data
communications capabilities as well as create a closer relationship with
remote workers through this service offering. We are currently engaged in
technical engineering trials of this technology over our network
architecture.
- VOICE OVER DSL. In contrast to our proposed PBX extension service where
the end-to-end telephone connection is transmitted over a dedicated DSL
wide area network, our anticipated Voice over DSL offering will transmit
voice traffic over our network onto the public telephone exchange system.
Voice over DSL service allows customers to avoid separate local access
charges for stand-alone telephone service. We are currently testing this
voice capability over our network architecture with Copper Mountain
Networks and Tollbridge. To facilitate this service, we expect to resell
voice capacity from other competitive carriers.
- VIRTUAL PRIVATE NETWORKS. Virtual private networks, or VPNs, are an
evolution of WANs. Whereas WAN offerings involve the deployment of
dedicated lines to a customer over a private backbone, VPNs will permit
private networks to be deployed over shared public networks, thereby
reducing subscriber costs.
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- MULTI-TENANT ACCESS. Multi-tenant access involves the installation of a
DSLAM at the customer premises instead of at a central office. This
offering would be focused on serving commercial customers occupying a
dense office park or high-rise. Because our DSLAM would be located on the
customer's site, we would be able to offer more customers our higher speed
services as a result of the decreased loop length. Further, our ability to
rapidly provision customers would be enhanced because we would not be
depending on the incumbent carrier to provision the existing copper line
to the customer's premise.
TARGET CUSTOMERS
We believe that small- and medium-sized businesses in secondary markets have
specific needs for which our applications and services are well suited. These
target customers tend to have the following characteristics:
- Growing high-speed Internet access and high bandwidth network needs;
- Inadequate or nonexistent information technology staff and departments;
- Fewer than 100 employees;
- Existing ISDN or dial-up Internet access service;
- Reliance on traditional high-speed alternatives, such as T1 lines which
are significantly more expensive; and
- Underserved by existing service providers.
MARKETING AND SALES
We create market awareness and promote our applications and services to
small- and medium-sized businesses through our focused marketing efforts, our
direct sales approach and indirectly through marketing partners, such as ISPs
and value added resellers.
MARKETING
The goal of our marketing efforts is to establish the Jato brand as a
preferred provider of network-enabled applications and services. We believe that
our marketing approach will help to make us a market share leader in each of the
markets we offer, or intend to offer, our services. Our marketing group is
focused on enhancing brand recognition, differentiating us from other data
communication providers, leveraging our early entrant advantage and dominating
selected vertical sectors of our markets. We believe that our alliance with
Lucent will give us a significant advantage in achieving these objectives as
Lucent has agreed to provide us with financial support to market co-branded
products and services in each market we deploy our network. Our marketing
approach will differ in each market, depending upon such factors as the presence
or absence of direct competitors, the nature of any competitive advertising and
promotional offers, preconceptions or lack of awareness about DSL and other
high-speed Internet access options, and our time-to-market advantage relative to
other providers. We also support our direct and wholesale sales efforts with
coordinated public relations programs, which are designed to educate consumers,
develop active interest from our target customer base and, most importantly,
enhance our brand recognition. With this approach, we believe that we will be
able to deepen our market penetration and increase customer retention.
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DIRECT SALES
Key elements of our direct sales approach include:
- NEW MARKET LAUNCH TEAM. To facilitate a new market launch, we dispatch our
new market launch team to establish our local sales office and recruit and
hire local sales personnel to service that market. Because our new market
launch team repeats this market development process in each of our target
markets, we can quickly and efficiently establish our sales presence.
- JATOBRIDGE DATABASE. Our proprietary database marketing system, called
JatoBridge, targets and pre-qualifies potential customers in each of our
target markets. With JatoBridge, we aggregate and process demographic,
marketing, and geographic data relative to small- and medium-sized
businesses in our target markets using a combination of proprietary
selection algorithms, statistical modeling and analytical tools to develop
a pre-qualified list of potential customers with the highest probability
of acquiring DSL technology and enabled applications. In addition, through
our geographic information systems, we can determine the capability of
delivering broadband services to prospective customers' sites based on
central office and individual customer locations. We believe JatoBridge
will allow us to increase and accelerate market penetration, reduce
customer acquisition expenses, increase customer retention rates, and
facilitate the sale of additional applications and services.
- ACCOUNT MANAGERS. Our account managers are responsible for identifying and
soliciting potential customers within their geographic region. We hire
account managers within each market who have specific experience selling
communications or other similar services. Our account managers work in
tandem with our telesales personnel to efficiently establish a local
presence and facilitate the sale of our applications and services. Account
managers are compensated with a base salary and commissions based on the
number of lines sold.
- TELESALES PERSONNEL. Our telesales personnel cover territories around
central offices where we have deployed, or intend to deploy, our network
applications and services. Our telesales personnel are compensated with a
base salary and commissions based on the number of lines sold in a
particular market. We believe that our telesales approach, when combined
with JatoBridge and our account managers, will enable us to penetrate our
potential customer base more quickly and efficiently, and will facilitate
the sale of our applications and services.
- SPECIALIZED ACCOUNT GROUPS. We have established specialized account groups
to sell applications and services to small-and medium-sized businesses in
specific, data intensive industries. Account groups have initially been
established in the healthcare, travel and real estate sectors. We staff
these specialized account groups with professionals who have expertise and
experience in the particular sector that they will serve.
INDIRECT SALES
We also market our services to end users through strategic marketing
partners, including ISPs, interexchange carriers and value added resellers. We
offer each indirect sales partner high-speed network access services that it can
bundle with its own product offerings.
CUSTOMER CARE AND SUPPORT SERVICES
We believe that a dedicated customer service group, exceptional operations
support systems and seamless process integration are all critical ingredients to
delivering customer care that meets or exceeds our customers' expectations,
reduces churn and increases our ability to sell new services to existing
customers. Beginning with our initial customer contact through provisioning,
billing and ongoing support services, we provide our customers with a single
point of contact. We have designed our provisioning and service systems to
enable our customers to be self-sufficient and yet have rapid
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access to additional support if needed. Our customer care system is designed to
interact with our customers via e-mail, call center or directly through our
extranet 24 hours a day, seven days a week.
Our workflow management system provides intelligent routing and management
of customer orders through the appropriate internal and external organizations
from the point of order entry through incumbent carrier provisioning and on-site
installation. Our systems have been designed to be both flexible and scalable in
order to support our expected future back office requirements. Our intelligent
routing and management capability allows us to efficiently manage our
provisioning process and immediately recognize and address potential or incurred
customer order problems on a real-time basis. We have applied performance
metrics to each step in the provisioning process so that we may anticipate and
quickly react to potential problems or conditions that could cause a delay or
disruption in service.
PROVISIONING
Our business model requires the lease of unbundled local loops from the
incumbent carrier. Our experience shows that the timely and accurate transfer of
information between ourselves and the incumbent carrier is crucial for success.
Thus, we have entered into an agreement with Mantiss as our provider of the
incumbent carrier gateway platform for provisioning management. We have selected
this company based on their technical architecture and their ability to
proactively manage the interface changes inherent in incumbent carrier order
gateways. We believe that through this electronic data interface with the
incumbent carriers we will be able to further reduce the time required to
provision unbundled local loops.
BILLING
Flexible and scalable billing capabilities are critical to our direct sales
strategy. We have chosen to implement Solect Technology Group's IAF billing
system application. Solect's IAF Horizon is a leading IP billing software
solution for service providers. IAF Horizon provides an integrated approach to
billing, customer care and service management. Its platform architecture will
enable flexibility, scalability and adaptability. Solect's key customers
include, among others, GTE Data Services, Eircom, and AT&T Canada.
NETWORK DEPLOYMENT
We collocate our equipment in selected central offices to cover on average
over 80% of the businesses in our target markets. We believe this enables us to
maximize our capital expenditure efficiencies while reaching a significant
portion of our markets. As of January 31, 2000, we provided services in four
markets and had collocated our equipment in six additional markets. We intend to
offer our services in a total of 40 markets nationwide, comprised of 120 cities,
by the end of 2000 and in a total of 50 markets by the middle of 2001.
NETWORK ARCHITECTURE
DSL TECHNOLOGY
Our DSL access service allows customers to choose the speed and performance
level that they require today with the option to upgrade in the future. In most
cases, our customer premise equipment does not require any hardware
modifications or an on-site service call to upgrade to a higher level of
service. Substantially all upgrades can be configured remotely through software
configuration changes. Subject to the distance and other limitations described
below, our customers are able to change their level of service with the help of
a customer support representative or by logging into our extranet. For our
customers who desire to increase their network performance but are presently
limited from upgrade due to their distance from the central office, we can, in
many cases, double the speed of any
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of our service offerings by utilizing standard multiplexing technology. We
believe that prospective customers will find this to be a very attractive,
cost-effective solution to their networking needs.
SYMMETRIC DIGITAL SUBSCRIBER LINE. We primarily offer a variation of DSL
called SDSL, or symmetric digital subscriber line. SDSL transmission speeds are
the same to and from the end user. In contrast to other DSL technologies, SDSL
permits us to provision customers at a specific transmission speed. Customers
order the speed they desire and pay additional subscription charges to increase
the speed. We offer SDSL at speeds that range from 144 Kbps to 1.5 Mbps. For
customers that are generally located within 9,000 feet of a central office, we
can provide transmission speeds that are equivalent to T1 services at a fraction
of the price. Through standard multiplexing technology, we can extend T1
equivalent speeds up to 13,500 feet of a central office. At lower SDSL
transmission speeds, we are generally able to provide services to end users that
are within 20,000 feet of a central office. The speeds at which we provision
customers are designed to meet the typical bandwidth requirements of small- to
medium-sized businesses.
INTEGRATED DIGITAL SUBSCRIBER LINE. We also offer IDSL, or integrated
digital subscriber line, technology. This technology allows us to reach end
users within 35,000 feet of a central office service area. We target these
services to current ISDN subscribers because IDSL can typically utilize the
customer's existing ISDN equipment. We believe IDSL compares favorably with ISDN
on a price/ performance basis. IDSL service is significantly less expensive,
when the flat rate of IDSL is compared with the ISDN per minute or flat rate
charges. IDSL operates at speeds up to 144 Kbps, or 288 Kbps using standard
multiplexing technology, whereas ISDN is limited to 128 Kpbs. Moreover, because
IDSL is "always-on," as compared to the dial-up ISDN service, customers can
readily and continuously access the Internet. We also offer IDSL to customers
that do not have lines consisting of continuous copper, such as certain
customers who tend to be served with Digital Loop Carrier services from their
incumbent carrier.
OTHER BROADBAND ACCESS SOLUTIONS
We expect to utilize a variety of wireline and wireless broadband access
technologies to supplement our core DSL network and maximize our nationwide
footprint. We intend to deploy complementary technologies in areas where DSL is
not accessible or cost effective.
NETWORK DESIGN, IMPLEMENTATION AND MANAGEMENT
We have designed and are deploying our network through engineering,
equipment and service alliances with national suppliers. We have a strategic
alliance with Lucent to install, monitor and maintain our central office
equipment, local area and national networks. Lucent will provide us with
end-to-end network management 24 hours a day, seven days a week through their
national network operations center that can respond to every level of our
network beginning with individual customer lines, through our central office
equipment and through our local area and national backbone circuits. We believe
that our expertise in technology and alliance management allows us to focus and
maximize the technical specialties of each of our suppliers and assemble a
network that is reliable, rapidly expandable and capital efficient. We have
established a network engineering and management staff within our organization
that will provide management oversight of our network deployment and operations
and provide supplementary deployment and other services. We believe that our
network strategy enables us to quickly deploy our national network, minimize our
capital expenditure and overhead requirements and rapidly fulfill and adapt to
the needs of our customers.
NETWORK COMPONENTS
DSL MODEMS AND CUSTOMER PREMISE INSTALLATION. We purchase DSL modems
primarily from Netopia and arrange for the on-site installation and wiring
through outside vendors including CMC
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Telecor and Integrated Systems Installers. We ensure the successful connection
of the modem into the local loop.
LEASED LOCAL ACCESS LINES. We lease the copper line running from our
central office equipment to the end user. We provision the line from the
incumbent carrier and perform tests to ensure line quality. We also monitor this
line via the Turnstone equipment that we receive through our Lucent relationship
to proactively ensure the quality of the connection. Through our Turnstone
monitoring capabilities we are able to remotely diagnose and temporarily correct
problems by re-routing customer traffic resulting in minimal service disruption
to the end user. The Turnstone equipment enables us to reduce our operating
costs and improve service quality.
CENTRAL OFFICE EQUIPMENT. Through our relationship with Lucent, we utilize
Copper Mountain DSLAM equipment in our central office locations. Lucent
installs, maintains and monitors all of our equipment in our central office
locations. This arrangement allows us to deploy our central office equipment
quickly and consistently across our nationwide network. We believe that by
utilizing the national service infrastructure of Lucent we will reduce our
central office installation costs and we will be able to focus on managing the
quality of installation services and on the efficient and rapid deployment of
our network. We have also deployed Turnstone equipment in each of our central
office locations.
SWITCHING CENTER. Our switching center is a local point of presence within
a market where local traffic is aggregated from our central office locations.
The switching center houses our asynchronous transfer mode, or ATM, switches and
IP, or internet protocol, routers. ATM is an efficient, high-speed transport
mechanism that utilizes a packet-like switching and multiplexing technique. We
design our switching centers for high availability including backup power,
redundant equipment and active network monitoring.
BACKHAUL SERVICES. We utilize backhaul network services to transport
traffic from central offices to our switching centers, as well as route traffic
from our switching centers to the local point of presence of our ISP partners or
backbone provider. These backhaul services are provided by national and global
networking carriers such as Qwest Communications, Level 3 Communications and MCI
WorldCom. Through our relationships with these communications companies, we can
offer our customers seamless, broadband data networking capabilities.
BACKBONE SERVICES. We will interconnect our switching centers through
backbone providers such as Qwest Communications, Level 3 Communications and MCI
WorldCom. Through our backbone providers, we will create a nationwide broadband
infrastructure. Our integrated backbone network will enable us to provide
advanced data services such as VPN. In the future, we expect to add additional
transmission protocols, including frame relay and ATM services.
COMPETITION
We expect to face competition from many competitors with significantly
greater financial resources, well-established brand names and large, existing
installed customer bases. Moreover, we expect to face increased competition in
the future. We expect significant competition from:
INCUMBENT LOCAL EXCHANGE CARRIERS. Incumbent local exchange carriers, such
as Bell Atlantic, SBC Communications and U S WEST, have begun deploying
DSL-based services and other high speed data communications services. Such
carriers are also leasing wide area connections and have existing metropolitan
area networks and circuit switched local area networks. We believe that
incumbent carriers have the potential to quickly overcome many of the issues
that have delayed widespread deployment of DSL services in the past. As a result
of owning copper lines, these incumbent carriers can bundle digital data
services with their existing voice services to attain a significant competitive
advantage in serving customers. Incumbent carriers also possess sufficient
capital to deploy DSL
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services rapidly and are in a position to offer service from central offices
where we may be unable to secure collocation space. Collocation refers to a
location where a competitive carrier network interconnects with the network of
an incumbent carrier inside an incumbent carrier's central office. In addition,
the FCC is considering establishing requirements for separate subsidiaries
through which these carriers could provide DSL service on a substantially
deregulated basis. As such, we expect these carriers to be strong competitors in
each of our target markets.
INTEREXCHANGE CARRIERS. Many of the leading interexchange carriers,
including AT&T, MCI WorldCom and Sprint, are building and expanding their
networks to support high-speed, end-to-end network services. Increasingly, their
bundled services include high-speed local access combined with metropolitan and
wide area networks, and a full range of Internet services and applications.
These carriers have deployed national networks, have strong brand recognition,
and in many cases have announced the deployment of DSL services in combination
with their current fiber networks as a result of interconnection agreements and
collocation spaces with many incumbent local exchange carriers. More recent
national carriers, such as Qwest Communications, Level 3 Communications and IXC
Communications are building and managing high-bandwidth, nationwide IP-based
packet networks and partnering with Internet service providers to offer services
directly to the public, including business customers.
CABLE MODEM SERVICE PROVIDERS. Cable modem service providers, like
Excite@Home and its cable partners, are offering or preparing to offer
high-speed Internet access over hybrid fiber coaxial cable networks to
consumers. @Work has positioned itself to do the same for businesses. Where
deployed, these networks provide local access service similar to our services,
and in some cases at higher speeds and lower prices.
DSL-BASED COMPETITIVE LOCAL EXCHANGE CARRIERS. Certain competitive
carriers, such as Covad Communications, DSL.net, HarvardNet, Network Access
Solutions, NorthPoint and Rhythms NetConnections, are offering DSL-based data
services. We also anticipate competition from other national and regional
carriers. Other competitive carriers are likely to do so in the future. The 1996
Telecommunications Act specifically grants competitive carriers the right to
negotiate interconnection agreements with incumbent carriers, including
interconnection agreements which may be identical to, or more favorable than,
our agreements.
TRADITIONAL COMPETITIVE LOCAL EXCHANGE CARRIERS. Traditional competitive
carriers such as Allegiance, BTI, Electric Lightwave, e.spire, Intermedia and
McCleodUSA have extensive fiber-based networks in many metropolitan areas,
primarily providing voice and high-speed data circuits to business users. Many
of these carriers have begun offering DSL services to their customers.
INTERNET SERVICE PROVIDERS. Internet service providers, like America
Online, Flashcom and UUnet, provide Internet access to residential and business
customers. These companies generally provide Internet access over the incumbent
carriers' circuit switched networks at ISDN speeds or below. However, some
Internet service providers have begun offering DSL-based access using their own
DSL services, or DSL services offered by the incumbent carrier or other
DSL-based competitive carriers. Some Internet service providers, such as
Concentric Network Corporation, Mindspring Enterprises, Inc., PSINet Inc. and
Verio, have significant and even nationwide marketing presences and combine
these with strategic or commercial alliances with DSL-based competitive
carriers.
WIRELESS AND SATELLITE DATA SERVICE PROVIDERS. Several new companies,
including Advanced Radio Telecom, Teligent and WinStar Communications, are
emerging as wireless data service providers, over a variety of frequency
allocations. Satellite-based data service providers, such as Motorola Satellite
Systems and Hughes Communications are also emerging. These companies use a
variety of new and emerging technologies, such as terrestrial wireless services,
point-to-point and point-to-multipoint fixed wireless services, satellite-based
networking and high-speed wireless digital communications.
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We may be unable to compete successfully with these or future competitors.
The most significant competitive factors include: price, performance,
transmission speed, service reliability, breadth of product offerings, network
security, ease of access and use, customer support, brand recognition, operating
experience, capital and exclusive contracts with customers and Internet service
providers and businesses with multiple locations. Additionally, the
telecommunications industry is subject to rapid and significant changes in
technology. As such, we cannot assess the effect such technological changes will
have on our business, particularly the developments in DSL technology and
alternative high-speed data communications technologies. These developments
could have a material adverse effect on our competitive position.
GOVERNMENT REGULATION
Jato is a telecommunications common carrier. As a result, we are subject to
substantial federal, state and local regulation of our services and facilities.
The Federal Communications Commission exercises jurisdiction over state-to-state
and international services. Each state public utility and service commission has
jurisdiction over services within that state. In addition, cities and other
local governments may require us to obtain licenses or franchises to operate our
networks in or across a public right-of-way.
FEDERAL REGULATION
In 1996, the federal government enacted the 1996 Telecommunications Act,
which establishes a pro-competitive, de-regulatory framework for the provision
of local and state-to-state telecommunications services by all
telecommunications providers. The 1996 Telecommunications Act imposes three
levels of duties on telecommunications carriers:
- general obligations applicable to all entities offering local exchange
services,
- additional obligations applicable to the previous monopoly local exchange
carriers (the so-called incumbent local exchange carriers), and
- special duties of the former Bell System operating companies (the
so-called Regional Bell Operating Companies or RBOCs).
All local exchange carriers, including Jato, must:
- not prohibit or unduly restrict resale of their services;
- provide number portability;
- provide dialing parity and nondiscriminatory access to telephone numbers,
operator services, directory assistance and directory listings;
- afford access to poles, ducts, conduits and rights-of-way; and
- establish reciprocal compensation arrangements for the transport and
termination of local telecommunications traffic.
Incumbent local exchange carriers must also comply with additional
obligations intended to enable new competitors to compete with the incumbent's
services. Incumbent carriers must negotiate local interconnection agreements in
good faith, make those agreements available to all competitors on a
nondiscriminatory basis and permit competitors to interconnect their networks in
order to exchange calls between their respective subscribers. Incumbent carriers
must provide this interconnection at any technically feasible point within the
incumbent carrier's network and on just, reasonable and nondiscriminatory rates,
terms and conditions. In addition, the 1996 Telecommunications Act permits
competitors to utilize portions of the incumbent carrier's network on an
individual basis in order to offer any telecommunications service, to co-locate
their equipment at the incumbent carrier's network
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locations, and to obtain the incumbent carrier's retail services at wholesale
prices for resale to end users.
In addition, the 1996 Telecommunications Act imposes a number of
restrictions on the ability of RBOCs to manufacture telecommunications equipment
and to provide long distance and other services. Under section 271 of the 1996
Telecommunications Act, the RBOCs must comply with certain safeguards and offer
interconnection that satisfies a prescribed 14-point checklist before they may
provide long distance services within their local territories. These safeguards
are designed to ensure that the RBOCs' competitors have fully opened their
networks to competitors and to promote competition by preventing RBOCs from
using their market power in local exchange services to obtain an
anti-competitive advantage in the provision of other services.
The overriding purpose of the 1996 Telecommunications Act is to create
competitive opportunities for companies to offer all types of telecommunications
services. In so doing, the 1996 Telecommunications Act granted important
regulatory relief to industry segments which compete with competitive local
exchange carriers. The Federal Communications Commission was given authority to
refrain from applying most statutes and regulations to our competitors
(including the incumbent carriers). Incumbent carriers were given substantial
new pricing flexibility and the RBOCs were given broader rights to participate
in related telecommunications markets. Cable television providers were
authorized to offer telecommunications services and internet access over their
cable networks. In addition, under the 1996 Telecommunications Act all utility
holding companies are permitted to diversify into telecommunications services.
Each of these potentially competitive services, as well as data services
delivered via wireless or satellite technologies, are subject to differing
regulatory regimes which frequently are not at parity with one another. As a
result, Jato may face competition from entities subject to more favorable or
less onerous regulation than applies to us.
Federal proceedings implementing the provisions of the 1996
Telecommunications Act have been extremely complex and are subject to continuing
revision. Jato relies substantially on rights granted to us by the 1996
Telecommunications Act, including rights to co-locate our equipment at the
incumbent carriers' locations and to use the incumbent carriers' telephone lines
and other network elements. Federal rules implementing these rights may have a
material effect on our business.
Most of the framework implementing the local competition provisions of the
1996 Telecommunications Act was established in an order adopted by the Federal
Communications Commission on August 8, 1996 in its CC Docket 96-98. In its
order, the Federal Communications Commission:
- identified certain minimum points in the network where the incumbent
carriers must permit competitors to interconnect and install their own
equipment for carrying telecommunications traffic;
- prescribed standards to ensure that interconnection could be made at other
efficient places in the network
- adopted a minimum list of network elements (i.e., those portions of the
incumbent carriers' networks that incumbents must allow competitors to use
on an unbundled basis);
- adopted rules requiring incumbents to offer those elements at quality
levels specified by competitive carriers and to combine those elements
upon request;
- adopted a methodology for the state public utility commissions to use in
establishing cost-based rates for interconnection and the use of these
network elements; and
- adopted a methodology for applying the 1996 Telecommunications Act's
avoided cost standard when setting wholesale prices for the incumbent
carrier's retail services.
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Most provisions of the Federal Communications Commission's order were
appealed. Numerous appeals were consolidated for consideration by U.S. Court of
Appeals for the Eighth Circuit (captioned IOWA UTILITIES BOARD V. FCC). On
July 18, 1997, the Court of Appeals released its decision regarding issues
raised in the consolidated appeals of the order, upholding the Federal
Communications Commission's order in part and reversing it in part; it modified
that decision on August 22, 1997.
On January 25, 1999, the U.S. Supreme Court reversed important portions of
the Eighth Circuit's holding in IOWA UTILITIES BOARD. Specifically, the Supreme
Court ruled that:
- the Federal Communications Commission properly exercised its authority
under the 1996 Telecommunications Act in establishing pricing rules for
incumbent carriers' network elements and resale;
- the Federal Communications Commission had authority to preclude incumbent
carriers from separating unbundled network elements which are already
combined; and
- the Federal Communications Commission was justified in promulgating
rules enabling competitors to select favorable provisions from other
carriers' existing interconnection agreements.
However, the Supreme Court also held that the Federal Communications
Commission's analysis in identifying the minimum list of network elements was
inadequate. The Court ruled that the Federal Communications Commission failed to
consider sufficiently the requirement under the 1996 Telecommunications Act that
those network elements be necessary, or that a lack of access to those elements
would impair the ability of competitors to offer services. The Court vacated the
relevant rule and remanded the matter to the Federal Communications Commission
either to modify the rule or justify it, subject to further court review.
Certain other aspects of the Federal Communications Commission's order were
vacated by the Eighth Circuit and were not appealed to the Supreme Court; thus,
they remain vacated. These include Federal Communications Commission rules that
had directed incumbents to combine network elements requested by competitors
whether or not those elements had previously been combined, and a provision
requiring that interconnection arrangements be superior in quality to those
provided by the incumbent carriers to themselves, when requested to do so by
competitors. The Federal Communications Commission and several competitive local
exchange carriers have asked the Eighth Circuit to reinstate these rules based
upon the Supreme Court's reasoning, but these requests have not yet been acted
upon by the court.
On September 15, 1999, the Federal Communications Commission adopted an
order reexamining its minimum list of network elements as directed by the
Supreme Court. This order reaffirmed the most important six of the original
seven mandatory network elements that incumbents must provide, and expanded the
ability of competitors to obtain unbundled local loops, especially loops used to
provide DSL and other high capacity services. The order makes clear that the
states are free to add other unbundled network elements to the list identified
by the Federal Communications Commission. In addition, the Federal
Communications Commission affirmed the rights of competitors to obtain pre-
existing combinations of network elements, including extended loops. The 1999
order, however, scaled back competitors' abilities to use the incumbent's local
switches and generally does not require incumbents to share their data
communication networks. As of December 20, 1999, these rules have not yet become
effective, and are subject to petitions for review and/or reconsideration by
various industry parties. We are unable to predict what the outcome of any
resulting litigation will be or when these matters will be resolved.
Finally, the Federal Communications Commission is considering a proceeding
which may affect Jato's ability to gain access to multi-tenant buildings in
order to provide its services. No decision has been issued in this proceeding,
and Jato is unable to predict when, or if, the Federal Communications Commission
will act in the proceeding.
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With the increasing deployment of high-speed telecommunications networks,
the Federal Communications Commission continues to review its policies and
rules for the provision of advanced communications services. Advanced
communications services are wireline, broadband telecommunications services,
such as services that rely on digital subscriber line technology (commonly
referred to as xDSL) and packet-switched technology. In an order released on
August 6, 1998, the Federal Communications Commission clarified that the
interconnection, unbundling and resale obligations under the 1996
Telecommunications Act applied to the incumbents' advanced communications
facilities and services, and proposed measures to promote the deployment of
advanced communications services by both incumbent carriers and competitors.
However, the Federal Communications Commission also interpreted the 1996
Telecommunications Act as permitting (under certain circumstances) incumbent
carriers to deploy advanced communications services through separate affiliates
that would not be subject to the 1996 Telecommunication Act's unbundling and
resale obligations. The Federal Communications Commission currently is reviewing
these findings to more fully consider the proper classification of advanced
telecommunications services and the implications of that classification on the
scope of the incumbents' obligations with respect to the provision of these
services. This review could significantly affect competitor's abilities to gain
access to the incumbents' advanced service capabilities as well as the degree of
regulation the incumbents' retail advanced services may be subjected to.
On March 18, 1999, the Federal Communications Commission adopted a First
Report and Order in these proceedings further strengthening the rights of
competitors to lease space within the incumbent's facilities in order to place
the carrier's own telecommunications equipment. The Federal Communications
Commission, for example, permitted competitors to share space used by other
carriers at their option and required incumbent carriers to permit competitors
to place equipment in pre-installed racks and other cageless collocation
arrangements. The Federal Communications Commission also broadened the range of
permissible equipment that competitors may install to include equipment that
performs some switching and enhanced services functions. Finally, the Federal
Communications Commission limited the incumbents' ability to claim that
competitors' equipment posed fire or electrical hazards and proposed
rules making the standards incumbents may use more specific.
Many aspects of these rulings have been appealed to the U.S. Court of
Appeals for the D.C. Circuit. We cannot predict the final outcome of these
proceedings and associated appeals. In addition, we note that incumbent carriers
continue to seek both legislation and Federal Communications Commission action
to free them from regulation of advanced services, including the obligation to
unbundle their own DSL facilities, and we are unable to predict the outcome of
these efforts.
On November 18, 1999, the Federal Communications Commission adopted an order
in its advanced services proceeding requiring incumbents to offer access to the
high frequency portion of telephone lines they use to provide voice services to
a customer, provided that access will not degrade the voice services provided
over the same telephone lines. Access to the high frequency portion of a
telephone line -- referred to as line sharing -- will enable competitors to
provide high-speed data services (such as DSL) to a customer, without requiring
the customer to obtain a second telephone line dedicated for this purpose.
However, several important elements of line sharing, including the price at
which incumbents must provide such access, were left to the state commissions to
determine using federal guidelines. In addition, the order specifically
determines that SDSL, a symmetrical digital subscriber line technology used by
Jato, is not eligible for deployment on a line sharing basis because it uses the
frequencies devoted to voice transmissions. Moreover, incumbent carriers will
have at least until June 2000 to implement these new requirements. As a result,
we are unable to predict when line sharing will become available, or the degree
to which it will reduce the costs currently associated with providing high-speed
data services.
In November 1998, the Federal Communications Commission ruled that DSL
services used to provide dedicated access to interstate services, such as
Internet access, are interstate services subject to
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its jurisdiction. The Federal Communications Commission permitted incumbent
carriers to include such DSL services in their federally-filed tariffs, rather
than in state tariffs. On February 26, 1999, the Federal Communications
Commission ruled that local calls placed to ISPs (so-called ISP-bound traffic)
also is predominantly interstate traffic that is subject to federal
jurisdiction. However, having found that most ISP-bound traffic is
jurisdictionally interstate, the Federal Communications Commission went on to
clarify that its ruling did not preclude parties from treating this traffic as
local traffic for purposes of the payments carriers make when local calls
originate with one carrier and are completed to subscribers of another carrier.
On a prospective basis, the Federal Communications Commission is considering
rules for carrier to carrier payments for ISP-bound traffic. These decisions
currently are subject to reconsideration and appeal.
In response to several carrier tariffs offering interstate DSL services, the
Federal Communications Commission has ruled that advanced services that are
provided to ISPs for use in connection with the ISP's Internet access services
are wholesale telecommunications services, not telecommunications services
offered at retail. As a result, competitors may not obtain these DSL services at
wholesale prices under the 1996 Telecommunications Act. Services which are
offered to business or residential subscribers directly, however, are retail
services and may be obtained by other carriers at the wholesale price. This
ruling may allow ISPs to obtain volume and term discounts which meet or exceed
those available to non-ISPs that purchase DSL services.
In general, the Federal Communications Commission has a policy of
encouraging the entry of new competitors, such as Jato, in the
telecommunications industry and preventing anti-competitive practices.
Therefore, the Federal Communications Commission has established different
levels of regulation for dominant carriers and nondominant carriers. Large
incumbent local exchange carriers such as GTE and the RBOCs are currently
considered dominant carriers in their territories, while competitors such as
Jato are considered nondominant carriers.
- TARIFFS: As a nondominant carrier, we may install and operate
telecommunications facilities without prior Federal Communications
Commission authorization. Services of nondominant carriers have been
subject to relatively limited regulation by the Federal Communications
Commission, primarily consisting of the filing of tariffs and periodic
reports. However, nondominant carriers like Jato must offer interstate
services on a nondiscriminatory basis, at just and reasonable rates, and
remain subject to Federal Communications Commission complaint procedures.
Nondominant carriers have the option of filing tariffs for access services
provided to carriers who originate or terminate long distance calls to a
customer. However, the Federal Communications Commission has ruled that
long distance carriers must cancel their tariffs for domestic, state to
state long distance services, except for operator assisted calls and
casual calling using a carrier's 1-800 or 101-XXXX number. The Federal
Communications Commission's order has not taken effect, pending a review
of its lawfulness before the U.S. Court of Appeals for the District of
Columbia Circuit. We have not yet filed any tariffs for interstate
services with the Federal Communications Commission.
- INTERNATIONAL SERVICES: Nondominant carriers such as Jato are required to
obtain Federal Communications Commission authorization and file tariffs
before providing international communications services. At this time, we
do not have authority from the Federal Communications Commission to
provide voice or data communications services between the United States
and foreign points. We believe that such authority likely would be granted
by the Federal Communications Commission upon request.
- CONTRIBUTIONS TO FUND UNIVERSAL SERVICE SUBSIDIES: On May 8, 1997, the
Federal Communications Commission released an order in its CC Docket No.
96-45, which reforms the current system of interstate support mechanisms
designed to make telephone service universally available. The Federal
Communications Commission established a set of policies and rules to
ensure that low-income consumers and consumers living in rural, insular
and other high cost
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areas receive a defined set of local telecommunications services at
affordable rates. This is to be accomplished in part through expansion of
direct consumer subsidy programs and in part by ensuring that rural, small
and high cost local exchange carriers continue to receive universal
service subsidy support. The Federal Communications Commission also
created new programs to subsidize connection of eligible schools,
libraries and rural health care providers to telecommunications networks.
These programs will be funded by assessment of eligible revenues of nearly
all providers of interstate telecommunications carriers, including DSL
providers such as Jato. Like all carriers that provide interstate
telecommunications services, we will be required to contribute to the
subsidy. The subsidy could also enable the incumbent carriers to reduce
prices that they charge to certain customers, putting additional
competitive pressure on Jato. We presently are unable to predict the
potential impact of these universal service funding reforms, but they
could have a significant impact on our future operations.
- OTHER GOVERNMENT REGULATION: Government regulation in a number of other
areas may affect Jato. For example, the Communications Assistance to Law
Enforcement Act requires telecommunications carriers to modify the design
of their equipment, facilities and services to ensure that electronic
surveillance can be performed at the request of authorized law enforcement
representatives. Telecommunications carriers are currently required to
comply with the core requirements of the Communications Assistance to Law
Enforcement Act in the year 2000. The potential cost to Jato in meeting
these requirements, which may be substantial, is unknown at this time. In
addition, government regulation of the Internet may also have an indirect
effect on our business, by increasing the cost of Internet access, making
the businesses of ISP's, who are customers of ours, less viable. If these
costs are passed on to customers of ISPs it could, in turn, affect the
extent to which companies and individuals access the Internet and engage
in electronic commerce. This may ultimately have a detrimental effect on
us.
STATE REGULATION
Jato believes that most, if not all, states in which it proposes to operate
will require a certification or other authorization to offer intrastate
services. However, provisions of the 1996 Telecommunications Act bar states and
localities from imposing any requirement that may prohibit, or have the effect
of prohibiting, the ability of any entity to enter the telecommunications
market. The Federal Communications Commission has the authority to preempt state
actions that operate as entry barriers.
Jato has obtained intrastate authority in each of the states where we
provide intrastate telecommunications services. In most states, Jato is required
to file tariffs setting forth the terms, conditions and prices for services that
are classified as intrastate.
We believe that, as the degree of intrastate competition increases, some
states are likely to offer incumbent carriers increasing pricing flexibility.
This pricing flexibility may present incumbent carriers with an opportunity to
subsidize services that compete with our services with revenues generated from
less competitive services, thereby allowing incumbent carriers to offer services
competing with ours at prices below the cost of providing the service. Jato
cannot predict the extent to which this may occur or its impact on our business.
Numerous states have adopted or are considering adoption of new programs to
fund state universal programs. Jato could be required to contribute a
significant portion of its intrastate end user revenues toward the funding of
such programs, and such a development could have a significant impact on our
future operations.
LOCAL REGULATION
Should Jato in the future decide to operate its own network facilities over
public rights-of-way, it may be required to obtain various permits and
authorizations from municipalities where the facilities are located. Some
municipalities may seek to impose similar requirements on users of transmission
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facilities, even though they do not own such facilities. If municipal
governments impose conditions on granting permits or other authorizations or if
they fail to act in granting such permits or other authorizations, our business
could be adversely affected.
LOCAL INTERCONNECTION
Jato has entered into interconnection arrangements with Ameritech,
BellSouth, Pacific Bell, Southwestern Bell and US West, and we expect to execute
interconnection agreements covering substantially all of our target markets by
the end of the first quarter 2000. In most instances, we have adopted entire
agreements between the incumbent and another competitive carrier in each of
these states. We take these agreements subject to the terms and conditions
negotiated and/or arbitrated by the other carrier, and for the remaining term of
the underlying agreement. Some of our local interconnection agreements are
scheduled to expire during the year 2000, and will require extension or
renegotiation in the near future. There can be no assurance that these
negotiations and renegotiations of interconnection agreements will be
successful, that the agreements can be extended in a favorable manner, or that
arbitration of any unresolved issues by any state public regulatory commission
will be decided favorably to us.
EMPLOYEES
As of January 31, 2000, we had approximately 230 employees. We believe that
our future success will depend in part on our continued ability to attract, hire
and retain qualified personnel. Competition for such personnel is intense, and
we may be unable to identify, attract and retain such personnel in the future.
None of our employees are represented by a labor union or are the subject of a
collective bargaining agreement. We have never experienced a work stoppage and
believe that our employee relations are good.
PROPERTIES
Our headquarters are located in facilities consisting of approximately
30,000 square feet in Denver, Colorado, which we occupy under a lease that
expires in June 2004. The term of this lease may be extended. Under this lease,
we have a continuing right of first refusal covering all of the office space on
an additional floor comprising 22,000 square feet and a one time right of first
refusal covering 7,600 square feet on another floor.
We have also entered into a lease for an additional 13,000 square feet in
Denver, Colorado, which lease terminates in January 2003. These new facilities
are in the building adjacent to the building in which our headquarters are
currently located and are owned by the same landlord.
We recently entered into a sublease for approximately 21,000 square feet in
a building located in Englewood, Colorado, which lease terminates in May 2002.
We also lease space for network equipment installations and local offices in a
number of other locations.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings. See Note 7
of the notes to our consolidated financial statements.
------------------------
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. We have not independently verified any of
this information.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS
Our directors, executive officers and other officers and their ages as of
March 1, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Gerald K. Dinsmore............ 50 President, Chief Executive Officer and Director
William D. Myers.............. 41 Senior Vice President, Finance and Strategic
Planning, Chief Financial Officer, Treasurer and
Secretary
Terri L. Compton.............. 43 Executive Vice President, Operations and Chief
Operating Officer
Rex A. Humston................ 40 Senior Vice President, Engineering and Chief
Technology Officer
Brian E. Gast................. 39 Chairman of the Board
Leonard Allsup................ 51 Director
Eric A. Benhamou(1)........... 44 Director
Todd A. Brooks(1)(2).......... 39 Director
James J. Collis(1)(2)......... 37 Director
Donald T. Lynch(1)............ 51 Director
Gregg A. Mockenhaupt(1)(2).... 30 Director
OTHER OFFICERS
Keith M. Bennett.............. 51 President, Direct Markets
Thomas W. Hall................ 48 President, Indirect Markets
Robert G. Vidal............... 50 Senior Vice President, Human Resources and
Administration
F. Thomas Danner III.......... 39 Vice President, Applications Planning
Patrick M. Green.............. 44 Vice President, Carrier Relations
Gerard A. Maglio.............. 53 Vice President, Marketing
Edward P. Ziehm............... 41 Vice President, Business Operations
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS AND EXECUTIVE OFFICERS
All the officers identified above serve at the discretion of our board of
directors. There are no family relationships between any persons identified
above. The following are brief biographies of the directors, executive officers
and other officers identified above.
GERALD K. DINSMORE joined Jato in August 1999 as its President and Chief
Operating Officer, was elected to the board of directors in September 1999 and
was appointed Chief Executive Officer in November 1999. Prior to joining Jato,
Mr. Dinsmore served as President--Business Development and
47
<PAGE>
Integration of GTE from June 1997 to January 1999. As such, Mr. Dinsmore was
responsible for finance, strategic planning, business development, marketing and
regulatory affairs for all GTE business units. From 1993 to June 1997,
Mr. Dinsmore served as Senior Vice President of Finance, Strategy and Technology
Planning of GTE. In such capacity, Mr. Dinsmore was responsible for developing
and implementing long-term strategic planning, including technological
initiatives and mergers and acquisitions. Mr. Dinsmore also served as a member
of the Executive Leadership Council of GTE from 1996 to January 1999.
WILLIAM D. MYERS joined Jato in August 1999 as its Vice President, Finance,
Chief Financial Officer and Treasurer. Mr. Myers was elected Secretary in
December 1999 and appointed Senior Vice President, Finance and Strategic
Planning in February 2000. Prior to joining the Company, Mr. Myers was Vice
President of Finance and Treasurer of Primestar, Inc. from April 1998 to
August 1999. From September 1996 to April 1998, Mr. Myers served as Vice
President of Finance and Treasurer of TCI Satellite Entertainment, Inc. From
November 1994 to September 1996, Mr. Myers was Vice President of Capital
Management for TCI Cable Management Corporation and served as Director of
Finance for Tele-Communications, Inc. from December 1991 to November 1994.
TERRI L. COMPTON joined Jato in December 1999 as its Senior Vice President,
Market Operations and was appointed Executive Vice President, Operations and
Chief Operating Officer in February 2000. Prior to joining the Company, Ms.
Compton served as Vice President--Strategic Planning and Business
Development/National of GTE from September 1998 until December 1999. From
June 1996 until September 1998, Ms. Compton served as GTE's Vice
President--Business Development, National. From October 1986 until June 1996,
Ms. Compton served in various capacities at GTE.
REX A. HUMSTON joined Jato in October 1998 as its Vice President,
Engineering and Chief Technology Officer and was appointed Senior Vice
President, Engineering in February 2000. Prior to joining the Company,
Mr. Humston was Vice President, Information Systems and Technology for Jones
International Inc., a telecommunications company, from May 1997 until
October 1998. From February 1996 to May 1997, Mr. Humston was Vice President and
Chief Information Officer of Health Decisions International, a teleservices
company. From April 1994 to February 1996, Mr. Humston served as Director,
Information Services for OneComm Corporation, a telecommunications company.
BRIAN E. GAST is a founder of Jato and has served as a member of the board
of directors since its inception in 1998. Mr. Gast was elected Chairman of the
Board in November 1999 and served as Chief Executive Officer from Jato's
inception to November 1999. From inception to August 1999, Mr. Gast served as
President of Jato. Prior to forming the Company, Mr. Gast co-founded Formus
Communications, Inc., a developer of wireless broadband systems, in
November 1996 and served as its President. In December 1988, Mr. Gast co-founded
American Telecasting, Inc., a national operator of wireless cable television
systems, and served as its President and Chief Executive Officer from
March 1990 to January 1996.
LEONARD ALLSUP is a founder of Jato and has served as a member of the board
of directors since its inception in 1998. Mr. Allsup also served as the
Company's Treasurer from inception until August 1999 and as a Vice President of
the Company until February 2000. Prior to joining the Company, Mr. Allsup served
as Vice President, Strategic Alliances of Formus Communications, Inc., from
November 1996 to June 1998. Prior to joining Formus in 1996, Mr. Allsup was an
advisor to several privately owned companies in the cable television and gaming
industries. From February 1991 to July 1995, Mr. Allsup was President and Chief
Operating Officer of KBL-Media, Inc., a subsidiary of KBLCOM, Inc., a
diversified telecommunications company.
ERIC A. BENHAMOU has served as a member of the board of directors since
December 1999. Mr. Benhamou has served as Chief Executive Officer of 3Com
Corporation since September 1990 and as its President from April 1990 through
August 1998. Mr. Benhamou has been the Chairman of the Board of Directors of
3Com since July 1994. Mr. Benhamou served as 3Com's Chief Operating Officer
48
<PAGE>
from April 1990 through September 1990. From October 1987 through April 1990,
Mr. Benhamou held various general management positions within 3Com.
Mr. Benhamou also serves as Chairman of the Board of Cypress Semiconductor,
Inc., and as a director of Legato Systems, Inc. Mr. Benhamou is a member of
President Clinton's Information Technology Advisory Council.
TODD A. BROOKS has served as a member of the board of directors since
September 1999. Mr. Brooks joined Mayfield Fund, a Menlo Park-based venture
capital firm in February 1999, and has been a General Partner since June 1999,
where he specializes in investing in companies in the telecommunications
equipment and services sectors. From April 1995 to January 1999, Mr. Brooks
served as a Managing Principal for JAFCO America Ventures, the U.S. subsidiary
of JAFCO Co. LTD, an international venture capital investment firm. From August
1993 to April 1995, Mr. Brooks served as an equity research analyst for
telecommunications investments for Franklin-Templeton Group, an investment
corporation. From June 1987 to August 1991, Mr. Brooks held various engineering
and marketing roles at Applied Materials, Inc., a semiconductor capital
equipment company. Mr. Brooks currently serves on the board of directors of
Avanex Corp., a publicly traded company and he also serves on several private
company boards of directors.
JAMES J. COLLIS has served as a member of the board of directors since
April 1999. Mr. Collis is an Executive Vice President of CEA Management Corp., a
corporation formed to manage CEA Capital Partners USA, L.P. and CEA Capital
Partners USA CI, L.P., a New York-based venture capital firm. Mr. Collis has
served in this role since February 1997. Before joining CEA Management Corp.,
Mr. Collis was a Principal at Chase Manhattan Bank beginning in December 1996.
Before becoming a Principal, Mr. Collis was a Vice President of Chase Manhattan
Bank beginning in June 1995 and an Associate before that beginning in June 1991.
Mr. Collis specializes in investing in companies in the media and
telecommunications industry and serves on the boards of directors of Acme
Communications, Inc. and for numerous private media and telecommunication
companies.
DONALD T. LYNCH has served as a member of the Board of Directors since
December 1999. In January 1999, Mr. Lynch founded Lynch Associates, LLC, a
telecommunications consulting company. Prior to that, Mr. Lynch served in
various management positions at MCI Telecommunications Corporation from November
1981 to December 1998, including Senior Vice President--Finance, Network MCI
Services from June 1994 to September 1995, Senior Vice President, Financial and
Accounting Operations from September 1995 to September 1996 and Senior Vice
President, Local Financial Operations from September 1996 to December 1998.
GREGG A. MOCKENHAUPT has served as a member of the board of directors since
April 1999. Since March 1996, Mr. Mockenhaupt has served as a member of Crest
Partners II, LLC, a private investment firm that was formed in 1996 to focus on
communications-related investments and which is the general partner of Crest
Communications Partners, L.P. Prior to joining Crest in March 1996, Mr.
Mockenhaupt was an Associate in the Mergers & Acquisitions Group of Smith
Barney Inc. from June 1994 to March 1996. Mr. Mockenhaupt serves on several
private company boards of directors.
OTHER OFFICERS
KEITH M. BENNETT joined Jato in July 1999 as its President, Direct Markets.
Prior to joining the Company, Mr. Bennett served as President of Compass
Management and Consulting from November 1997 to July 1999. Mr. Bennett held
senior management positions with U S WEST (Director of Sales and Customer
Service) from October 1992 to March 1996, USA.NET (Vice President of Sales) from
March 1996 to December 1996, Intergram International (Senior Vice President)
from February 1997 to November 1997, and Online Systems Services (Senior Vice
President) from April 1998 to November 1998.
THOMAS W. HALL joined Jato in December 1999 as its President, Indirect
Markets. Prior to joining the Company, Mr. Hall served as Vice President,
IP/Data Services of GTE from December 1998 until
49
<PAGE>
December 1999. From January 1998 until December 1998, Mr. Hall served as GTE's
Vice President, Internetworking Strategic Planning. Mr. Hall served as GTE's
Regional President, Texas/New Mexico from November 1996 until January 1998. From
October 1994 until November 1996, Mr. Hall served in various capacities at GTE.
ROBERT G. VIDAL joined Jato in July 1999 as its Vice President, Human
Resources and was appointed Senior Vice President, Human Resources and
Administration in February 2000. Prior to joining the Company, Mr. Vidal served
as Vice President, Human Resources for New Era of Networks, a global provider of
packaged solutions, from October 1998 through July 1999. From March 1998 to
October 1998, Mr. Vidal served as Vice President, Human Resources, for Customer
Insight Company, a Metromail Company. From August 1997 to March 1998, Mr. Vidal
held the position of Assistant Chief Operating Officer for Denver Public
Schools, the largest urban school district in Colorado. Beginning in 1989
through June of 1994, Mr. Vidal held the position of Senior Vice President,
Human Resources for CenterMark properties, a national retail real estate
developer.
F. THOMAS DANNER, III joined Jato in May 1999 as its Vice President,
Applications Planning. Prior to joining the Company, Mr. Danner served as
Executive Director of DMW Worldwide, Inc. from July 1997 to May 1999. From
August 1996 to July 1997, Mr. Danner was a principal of The McKenna Group, a
market-consulting group. From January 1994 to August 1996, Mr. Danner served as
Chief Architect of BellSouth Entertainment. From February 1985 to January 1994,
Mr. Danner served as Vice President of Development of BellSouth Advanced
Networks.
PATRICK M. GREEN joined Jato in December 1998 as its Vice President, Carrier
Relations. Prior to joining the Company, Mr. Green was a consultant to domestic
and multinational companies in the local telephony and subscription television
industries from late 1995 to October 1998. From 1992 until forming his
consulting practice in late 1995, Mr. Green served as Vice President-Finance and
Administration of KBL-Media.
GERARD A. MAGLIO joined Jato in June 1999 as its Vice President, Marketing.
Prior to joining the Company, Mr. Maglio was the principal of Maglio &
Associates, a cable television and telecommunications firm founded in 1991.
Mr. Maglio is also a principal and partner in a number of entrepreneurial
marketing ventures both in and out of the cable telecommunications areas.
Mr. Maglio held senior management positions at American Television &
Communications (now Time Warner Cable) from July 1976 to August 1980, Rainbow
Programming Services from August 1980 to September 1982, Daniels & Associates
from September 1982 to September 1988, United Artists Cable from September 1988
to December 1991, DMX from February 1992 to April 1993 and Tele-Trend
Communications from April 1993 to July 1995.
EDWARD P. ZIEHM joined Jato in July 1999 as its Vice President, Business
Operations. Prior to joining the Company, Mr. Ziehm served in various
senior-level management positions at subsidiaries of TCI, including Executive
Vice President of Corporate Development for DMX and Vice President of TCI Music
from June 1997 to January 1998. He also served as Vice President Business
Technology & Operations for TCI from May 1993 to January 1997.
DIRECTORS' TERMS
We currently have eight directors. Members of the board of directors
currently hold office and serve until our next annual meeting of stockholders or
until their respective successors have been elected. In December 1999, our board
of directors approved, subject to stockholder approval, our restated certificate
of incorporation to provide for, among other things, a classified board of
directors. The restated certificate of incorporation states that the terms of
office of the board of directors will be divided into three classes: class I,
whose term will expire at the annual meeting of stockholders to be held in 2001,
class II, whose term will expire at the annual meeting of stockholders to be
held in 2002 and class III, whose term will expire at the annual meeting of
stockholders to be held in 2003. Under
50
<PAGE>
this provision, Messrs. Collis and Mockenhaupt will serve as class I directors,
Messrs. Allsup, Brooks and Gast will serve as class II directors and
Messrs. Benhamou, Dinsmore and Lynch will serve as class III directors. At each
annual meeting of stockholders beginning with the 2001 annual meeting, the
successors to directors whose terms expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election and until their successors have been elected.
BOARD COMMITTEES
COMPENSATION COMMITTEE. Our compensation committee consists of
Messrs. Brooks, Collis and Mockenhaupt. The compensation committee reviews
salaries, bonuses and stock options of our executive officers, and administers
our executive compensation policies, stock option plans and the bonus program.
No member of the compensation committee has been an officer or employee of Jato
at any time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
AUDIT COMMITTEE. Our compensation committee consists of Messrs. Benhamou,
Brooks, Collis and Mockenhaupt. Effective upon the closing of this offering, our
audit committee will consist of Messrs. Benhamou, Brooks and Lynch. The audit
committee is primarily concerned with the effectiveness of our accounting
policies and practices, financial reporting and internal controls. Specifically,
the audit committee recommends to the board the firm to be appointed as our
independent public accountants; reviews and approves the scope of the annual
examination of our books and records; reviews the audit findings and
recommendations of the independent public accountants; monitors the extent to
which we have implemented changes recommended by the independent public
accountants, or the audit committee; and provides oversight with respect to
accounting principles to be employed in our financial reporting.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses
incurred in attending board of directors and committee meetings, we do not
currently compensate our directors. The Company is, however, currently exploring
the possibility of implementing a compensation plan for directors in the future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
is an officer or employee of Jato. None of our executive officers serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board of directors or
Compensation Committee.
EMPLOYMENT AGREEMENTS AND TRANSITION AGREEMENTS
GERALD K. DINSMORE. On November 16, 1999, we entered into an amended
employment agreement with Gerald K. Dinsmore, our Chief Executive Officer. The
agreement has a two-year term which automatically renews on a month-to-month
basis unless either of us gives 30 day's prior written notice to the other. The
agreement provides for an annual base salary of $300,000 which will increase
annually in an amount determined by our board of directors.
Mr. Dinsmore may be paid a cash bonus at the discretion of our board of
directors. Mr. Dinsmore also was granted an option to purchase 1,125,600 shares
of our common stock, subject to the terms and conditions set forth in the stock
option agreement attached to his employment agreement. The agreement also
provides for the accelerated vesting of 50% of Mr. Dinsmore's unvested stock
options
51
<PAGE>
and restricted stock upon his death. Either of us can terminate Mr. Dinsmore's
employment at any time. However, if we terminate Mr. Dinsmore's employment
without cause, he will be entitled to receive twelve months' base salary and any
pro-rated bonus he is entitled to for that year. We have agreed to reimburse
certain commuting and relocation expenses of Mr. Dinsmore associated with his
relocation from Dallas to Denver, in addition to the reimbursement of closing
costs, moving expenses, furnishings, and related expenses up to an aggregate
maximum of $100,000.
Mr. Dinsmore's employment agreement contains provisions which prohibits him
during the term of the employment agreement from engaging in any other
employment, occupation or business enterprise, other than those in which he is a
passive investor. In addition, Mr. Dinsmore has agreed to abide by the terms of
his previously executed non-competition, proprietary information and inventions
agreement.
REX A. HUMSTON. On April 16, 1999, we entered into an employment agreement
with Rex A. Humston, our Vice President, Engineering and Chief Technology
Officer. The agreement has a one-year term, which automatically renews on a
month-to-month basis unless either of us gives 30 days' prior written notice to
the other. The agreement provides for an annual base salary of $150,000 which
amount increases annually by the greater of:
- 5% of Mr. Humston's salary, or
- an amount determined by our board of directors.
Mr. Humston may be paid a cash bonus at the discretion of our board of
directors. The agreement also provides for the acceleration of vesting of Mr.
Humston's stock options and the termination of our repurchase rights on the
shares of stock underlying those options if certain change in control
transactions occur and for acceleration of the vesting on 50% of Mr. Humston's
unvested stock options and restricted stock upon his death. Either of us can
terminate Mr. Humston's employment at any time. However, if we terminate
Mr. Humston's employment without cause, he will be entitled to receive twelve
months' base salary and any pro-rated bonus he is entitled to for that year.
Mr. Humston's employment agreement contains provisions which prohibits him
during the term of the employment agreement from engaging in any other
employment, occupation or business enterprise, other than those in which he is a
passive investor. In addition, Mr. Humston's agreement contains noncompete
provisions which prohibits him, during his employment and for a period of twelve
months after the termination of his employment, from engaging in any activities
in competition with us, and from accepting employment or establishing a business
relationship with certain of our competitors.
The employment agreements we have entered into with certain of our other
executive officers and key employees generally provide for similar terms as
those described above. If we terminate an executive's employment during the term
of his employment agreement without cause, the executive would generally be
entitled to receive a severance package from the Company.
On February 10, 2000, we entered into employment transition and separation
agreements with each of Brian E. Gast, our current Chairman and former Chief
Executive Officer, Leonard Allsup, our former Vice President, Strategic
Relationships and Bruce E. Dines, Jr., our former Vice President, Customer
Relations. Under the terms of the agreements, Messrs. Gast, Allsup and Dines
each will receive:
- his salary and health benefits through the earlier to occur of the closing
of this offering or June 30, 2000;
- a lump sum payment equal to one year of his current base salary, less
applicable deductions and withholdings; and
52
<PAGE>
- a bonus payment equal to the portion of the bonus he is entitled to
receive for the calendar year based upon the number of full months he was
employed for the year.
In addition, the vesting of all remaining unvested shares of Messrs. Gast,
Allsup and Dines' restricted stock will be accelerated such that 2,270,523
shares, 2,105,060 shares, and 1,139,858 shares, respectively, will vest on the
earlier of the closing of this offering or June 30, 2000. Under these
agreements, Messrs. Gast, Allsup and Dines also agree that for an additional
180-day period after their 180-day lock-up agreements with the underwriters
expire, they will not sell more than an aggregate of 750,000 shares (875,000
shares if Messrs. Gast, Allsup and Dines do not realize at least $5.0 million of
gross proceeds in the offering) during any three-month period. In addition, for
so long as Messrs. Gast, Allsup and Dines own shares of our stock, they agree
that they will not:
- knowingly sell their shares of the Company stock to a person or group who,
as a result of such sale, would own 5% or more of the Company's
outstanding stock or to directly or indirectly solicit any person or group
to purchase from them or any other shares in the Company if such person or
group, as a result of such purchase, would own 5% or more of the Company's
outstanding stock;
- knowingly sell their shares of the Company stock to a Company competitor
or to directly or indirectly solicit any competitor to purchase from
shares in the Company from them; and
- engage in, or support, a hostile proxy solicitation.
The agreements also provide for releases by Messrs. Gast, Allsup and Dines
in favor of the Company and contain non-compete and nonsolicitation provisions
which will apply to Messrs. Gast, Allsup and Dines during the remainder of their
employment with the Company and for a period of twelve months following their
separation date.
Jato loaned $100,000 to Mr. Gast pursuant to his original employment
agreement. The loan is secured by a pledge of Mr. Gast's common stock. The loan
bears interest at a rate of 5% per annum, compounded quarterly, and principal
and interest amounts will be forgiven by no later than March 31, 2000. Mr. Gast
will be solely responsible for all tax consequences relating to the forgiveness
of the loan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our four other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during 1999 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION(S) SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION
- ------------------ ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gerald K. Dinsmore(3) ........ $ 78,965 -- -- -- $113,764(4)
President and Chief
Executive Officer
Brian E. Gast(5) ............. $238,762 -- $36,347(6) -- $ 22,466(7)
Chairman and Former Chief
Executive Officer
Rex A. Humston ............... $148,269 -- -- -- $ 551(8)
Vice President, Engineering
and Chief Technology Officer
Leonard Allsup ............... $148,269 -- -- -- $ 611(9)
Former Vice President,
Strategic Relationships
Bruce E. Dines, Jr. .......... $148,269 -- -- -- $ 21,761(10)
Former Vice President,
Customer Operations
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the Named Executive Officers that
are available generally to all salaried employees and various perquisites
and other personal benefits received by the Named Executive Officers, which
do not exceed the less of $50,000 or 10% of any officer's salary and bonus
disclosed in this table.
(2) If Mr. Myers and Ms. Compton, who were not hired by Jato until August 1999
and November 1999, respectively, had been employed with Jato for the entire
year, their compensation would have been required disclosure in this table.
For 1999, Mr. Myers' base salary was $185,000 and Ms. Compton's base salary
was $200,000.
(3) Mr. Dinsmore has served as President and Chief Operating Officer from
August 1999 and as Chief Executive Officer since November 1999.
(4) Represents $100,000 of reimbursement for closing costs, moving expenses,
furnishings and related expenses as well as $13,653 of relocation expenses
and a housing allowance and $111 of health club benefits.
(5) Mr. Gast served as President from inception until August 1999 and as Chief
Executive Officer from inception until November 1999.
(6) Represents forgiveness of note payable.
(7) Represents $21,840 for relocation expenses and $626 of health club
benefits.
(8) Represents health club benefits.
(9) Represents health club benefits.
(10) Represents $21,210 of relocation expenses and $551 of health club
benefits.
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<PAGE>
OPTION GRANTS IN 1999
The following table sets forth information regarding options granted to the
Named Executive Officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE -----------------------------
NAME GRANTED 1999 ($/SHARE) EXPIRATION DATE 5% 10%
- ---- --------- ------------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore...... 1,125,600 18.5% $1.83 12/02/09 $1,295,427 $3,282,867
</TABLE>
The percent of total options granted to employees in the above table is
based on 6,101,385 total options granted in 1999. Twenty-five percent of these
options vest on December 3, 2000, and the remainder vest in equal installments
each month over the three-year period following December 3, 2000. Our board of
directors may reprice options under the terms of our equity incentive plan.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC and do not represent our estimate or projection
of future increases in the price of the common stock.
1999 OPTION EXERCISE AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the Named Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore......... -- -- -- 1,125,600 -- $13,698,552
</TABLE>
In the table above, the value of the unexercised in-the-money options is
based on an assumed public offering price of $14.00 per share minus the per
share exercise price, multiplied by the number of shares underlying the option.
EQUITY INCENTIVE PLAN
Our 1998 Equity Incentive Plan was adopted by the board of directors and
approved by our stockholders on August 10, 1998. The incentive plan was amended
and restated as the 2000 Equity Incentive Plan in February 2000. There is
currently an aggregate of 12,240,900 shares of common stock authorized for
issuance under the incentive plan. The incentive plan will terminate on
February 7, 2010 unless sooner terminated by the board (or Committee).
As of February 8, 2000, we had granted options under the incentive plan to
purchase an aggregate of 6,713,008 shares of common stock at a weighted average
price of $2.60 per share, 28,140 shares of which had been acquired through
exercises and 487,525 shares of which had lapsed. In addition, 703,500 shares of
restricted stock have been purchased under the plan at a price of $.533 per
share. No other stock awards have been granted under the incentive plan.
The incentive plan provides for the grant of incentive stock options, as
defined under the Internal Revenue Code of 1986, as amended, to employees
(including officers and employee-directors) and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation rights to
employees (including officers and employee-directors), directors and consultants
of Jato and its affiliates. The incentive plan is administered by the board or a
committee appointed by the board
55
<PAGE>
which determines recipients and types of awards to be granted, including the
exercise price, number of shares subject to the award and the exercisability
thereof.
The terms of options granted under the incentive plan may not exceed ten
years. The board or committee determines the exercise price of options granted
under the incentive plan. However, the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant, and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of the option grant. Options granted under the incentive plan vest at
the rate specified in the option agreement, which is generally four years.
Generally, the optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides for transfer in the stock option agreement. However,
an optionee may designate a beneficiary who may exercise the option following
the optionee's death. An optionee whose service relationship with Jato or any
affiliate ceases for any reason may exercise vested options for the term
provided in the option agreement, which is generally three months.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Jato or any affiliate of Jato, unless the option
exercise price is at least 110% of the fair market value of the stock subject to
the option on the date of grant and the term of the option does not exceed five
years from the date of grant. In addition, the aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year, under the incentive plan and all other stock plans of
Jato and its affiliates, may not exceed $100,000.
Pursuant to Section 162(m) of the Internal Revenue Code (which denies a
deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the incentive plan
covering more than 2,500,000 shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the incentive plan. Under its general authority to grant and to
amend options, the board (or committee) has the implicit authority to reprice
outstanding options or to offer optionees the opportunity to replace outstanding
options with new options for the same or a different number of shares. Both the
original and new options will count toward the Internal Revenue Code
Section 162(m) limitation set forth above.
Restricted stock purchase awards granted under the incentive plan may be
granted pursuant to a repurchase option in favor of Jato in accordance with a
vesting schedule determined by the board (or committee). The price of a
restricted stock purchase award under the incentive plan can not be less than
85% of the fair market value of the stock subject to the award on the date of
grant. Stock bonuses may be awarded in consideration of past services without a
purchase payment. Unless otherwise specified, rights under a stock bonus or
restricted stock bonus agreement generally may not be transferred other than by
will or the laws of descent and distribution during such period as the stock
awarded pursuant to such an agreement remains subject to the agreement. Stock
appreciation rights granted under the incentive plan allow a recipient to elect
to receive cash or stock of a value equal to the appreciation of optioned
rights. The incentive plan authorizes three types of stock appreciation rights:
a tandem stock appreciation right is granted along with a stock option and is
subject to the same terms and conditions applicable to the option. It requires
the holder to elect between exercising the option (and receiving our shares) or
surrendering, in whole or in part, the option and receiving instead cash or
stock equal to the appreciation of the shares that are surrendered. A concurrent
stock appreciation right also is granted with a stock option and is subject to
the same terms and conditions applicable to the option. However, it is exercised
automatically at the same time that the recipient
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exercises the option. Without surrendering any of the shares subject to the
option, the recipient receives cash or stock equal to the appreciation of the
shares exercised. On the other hand, an independent stock appreciation right is
not granted with a stock option, although it generally is subject to the same
terms and conditions applicable to nonstatutory stock options. On exercising the
independent stock appreciation right, the recipient receives cash or stock equal
to the appreciation of the share equivalents that the recipient is exercising.
If there is any sale of substantially all of our assets, any merger, reverse
merger or any consolidation in which we are not the surviving corporation, or
any acquisition by certain persons, entities or groups of 50% or more of our
stock, all outstanding awards under the Incentive Plan either will be assumed or
substituted for by any surviving entity. If the surviving entity determines not
to assume or substitute for such awards, the vesting provisions of such stock
awards will be accelerated and the awards terminated if not exercised prior to
such transaction.
401(K) PLAN
The Company sponsors a qualified defined contribution retirement plan,
called the Jato Communications Corp. 401(k) Plan, or 401(k) Plan, under which
eligible employees may elect to defer their current compensation by up to
certain statutorily prescribed annual limits ($10,500 in 2000) and to contribute
such amounts to the 401(k) Plan. The 401(k) Plan is intended to qualify under
Section 401 of the Code, so that contributions by employees or by the Company to
the 401(k) Plan, and income earned on such contributions, are not taxable to the
employees until withdrawn, and so that contributions by the Company will be
deductible by the Company when made. The trustee for the 401(k) Plan is Orchard
Trust Company. The 401(k) Plan permits employees to direct investment of their
accounts in the 401(k) Plan among a selection of mutual funds.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of March 1, 2000 for:
- each person (or group of affiliated persons) known to us to own
beneficially more than 5% of the common stock,
- each of our directors and named executive officers, and
- all of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock in
this offering (assuming no exercise of the underwriters' over-allotment option),
the conversion of all outstanding shares of preferred stock into common stock,
the 178,571 shares of common stock (based on an assumed initial public offering
price of $14.00 per share) to be issued to Qwest upon the closing of the
concurrent placement and the 297,619 shares of common stock (based on an assumed
initial public offering price of $14.00 per share) issuable to Qwest upon
exercise of the warrant to be issued upon the closing of the concurrent
placement.
Messrs. Gast, Allsup and Dines will sell in the offering as follows:
- if the size of the offering exceeds $125 million, they will sell the next
$5 million of the shares offered
- if the size of the offering exceeds $130 million, they will sell 50% of
the shares offered in excess of $130 million
In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options and warrants within 60 days of
March 1, 2000. Unless otherwise noted in the footnotes to the table and subject
to community property laws where applicable, the following individuals have sole
voting and investment control with respect to the shares beneficially owned by
them. Unless otherwise indicated, the business address for each of the
individuals or entities listed below is c/o Jato Communications Corp., 1099
18(th) Street, Suite 2200, Denver, Colorado 80202.
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<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER SHARES BENEFICIALLY OWNED(1)
OF SHARES ---------------------------------
BENEFICIALLY PRIOR TO AFTER
NAME OWNED(1) THE OFFERING THE OFFERING
- ---- ------------ ------------ ------------
<S> <C> <C> <C>
Crest Communications Partners, L.P. .................. 6,381,744 14.36 11.92%
320 Park Avenue, 17(th) Floor
New York, NY 10022
CEA Capital Partners USA, L.P.(2) .................... 6,381,744 14.36 11.92
17 State Street, 35(th) Floor
New York, NY 10004
Entities affiliated with 3,316,489 7.46 6.19
Hambrecht & Quist(3) .................................
One Bush Street
San Francisco, CA 94104
Entities affiliated with 3,785,494 8.52 7.07
ABN AMRO Capital (USA), Inc.(4) ......................
208 S. LaSalle Street, 10(th) Floor
Chicago, IL 60604
Entities affiliated with 2,763,745 6.22 5.16
Mayfield X, L.P.(5) ..................................
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Microsoft Corporation ................................ 2,512,499 5.65 4.69
One Microsoft Way
Redmond, WA 98052
Qwest Communications Corporation(6) .................. 2,512,499 5.65 5.55
555 Seventeenth Street
Denver, CO 80202
Brian E. Gast(7)...................................... 3,243,604 7.30 6.06
Leonard Allsup(8)..................................... 3,120,253 7.02 5.83
Eric A. Benhamou...................................... -- * *
Todd A. Brooks(9)..................................... 2,763,745 6.22 5.16
James J. Collis(10)................................... 6,381,744 14.36 11.92
Gerald K. Dinsmore.................................... 744,499 1.67 1.39
Donald T. Lynch....................................... -- * *
Gregg A. Mockenhaupt(11).............................. 6,381,747 14.36 11.92
Bruce E. Dines, Jr.(12)............................... 1,726,856 3.88 3.22
Rex A. Humston........................................ 716,061 1.61 1.34
All directors and executive officers as a
group (12 persons)(13).............................. 25,091,070 56.45% 46.85%
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than one percent.
(1) In accordance with Rule 13d-3 under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
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disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to
be a beneficial owner of the same securities. The percentage ownership of
each stockholder is calculated based on the total number of outstanding
shares of common stock, including outstanding shares of preferred stock
convertible into common stock, as of March 1, 2000.
(2) Includes 1,504,175 shares held by its affiliate CEA Capital Partners USA CI,
L.P.
(3) Includes 229,136 shares held by H&Q Jato Communications Investors, L.P.,
299,489 shares held by Hambrecht & Quist California, 130,649 shares held by
Hambrecht & Quist Employee Venture Fund, L.P. II, 2,625,057 shares held by
Access Technology Partners, L.P. and 32,158 shares held by Access Technology
Partners Brokers Fund, L.P. of which H&Q Venture Management, L.L.C. is the
general partner.
(4) Includes 184,136 shares held by ABN AMRO Incorporated and 956,992 shares
held by I Eagle Trust. I Eagle Trust is managed by ABN AMRO Private Equity,
a department of ABN AMRO, Inc.
(5) Includes 276,373 shares held by Mayfield Principals Fund, L.L.C. and
82,911 shares held by Mayfield Associates Fund IV, L.P.
(6) These shares are held by U.S. Telesource, Inc., a wholly-owned subsidiary of
Qwest Communications Corporation, and do not include 178,571 shares to be
issued in the concurrent private placement and a warrant to purchase 297,619
shares (each based on an assumed initial offering price of $14.00 per
share). For the purpose of calculating percentages after the offering both
the 178,571 shares to be issued in the concurrent private placement and the
shares issuable upon exercise of the warrant have been included.
(7) Includes 633,150 shares held by Gast Investment LLLP of which Mr. Gast is a
general partner. Includes 339,229 shares that will be sold by Mr. Gast if
the underwriters' over-allotment option is exercised in full (based on an
assumed initial public offering price of $14.00 per share). If sold, his
percentage owned after the offering will be 5.29%.
(8) Includes 37,519 shares held as custodian for his daughter. Includes 326,229
shares that will be sold by Mr. Allsup if the underwriters' over-allotment
option is exercised in full (based on an assumed initial public offering
price of $14.00 per share). If sold, his percentage owned after the offering
will be 5.09%.
(9) Mr. Brooks is a Managing Director of Mayfield X Management, LLC, the general
partner of Mayfield X, L.P. and a Managing Director of Mayfield Principals
Fund, LLC (the "Mayfield Entities"). Mr. Brooks may be deemed to be the
indirect beneficial owner of the shares owned by the Mayfield Entities. Mr.
Brooks disclaims beneficial ownership of the shares held by the Mayfield
Entities, except to the extent of his pecuniary interest arising therein.
(10) Mr. Collis is an Executive Vice President of CEA Management Corp.
("Management Corp.") which manages CEA Capital Partners USA, L.P. and CEA
Capital Partners USA CI, L.P. and disclaims beneficial ownership of the
shares held by each of CEA Capital Partners USA, L.P. and CEA Capital
Partners USA CI, L.P.
(11) The General Partner of Crest Communications Partners, L.P. ("CCP") is Crest
Partners II, LLC. The management company of CCP is Crest Communications
Holdings LLC ("Holdings"). Holdings may be deemed to indirectly beneficially
own the shares owned by CCP. Mr. Mockenhaupt is a member of Holdings and may
be deemed to be the indirect beneficial owner of the shares owned by CCP.
Mr. Mockenhaupt disclaims beneficial ownership of the shares held by CCP,
except to the extent of his pecuniary interest arising therein.
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(12) Includes 4,689 shares held by Mr. Dines' spouse, 42,210 shares held by the
Bruce E. Dines Jr. 1999 Annuity Trust, of which Mr. Dines is Trustee and
93,799 shares held by DYNEX & Co., a general partnership, of which Mr. Dines
is a general partner. Includes 180,602 shares that will be sold by
Mr. Dines if the underwriters' over-allotment option is exercised in full
(based on an assumed initial public offering price of $14.00 per share). If
sold, his percentage owned after the offering will be 2.82%.
(13) Includes 846,160 shares that will be sold by several of our selling
stockholders if the underwriters' over-allotment option is exercised in
full. See Notes 7, 8 and 12 above.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since our inception in
July 1998 to which we have been a party, in which the amount involved exceeds
$60,000 and in which any director, executive officer or holder of more than 5%
of our capital stock had or will have a direct or indirect material interest,
other than our compensation arrangements with our executive officers which are
described under "Management."
SERIES C FINANCING
On September 16, 1999 and December 22, 1999, we issued an aggregate of
3,947,642 shares of Series C preferred stock to certain principal stockholders
and certain other investors at a purchase price of $7.00 per share. We agreed to
reduce the price per share of the Series C preferred stock to $5.60 per share if
specified conditions were not satisfied by November 15, 1999. On November 16,
1999, we issued an additional 984,666 shares of Series C preferred stock because
such conditions were not satisfied. Of the 4,932,308 shares of Series C
preferred stock issued, which will convert into 6,939,757 shares of common stock
upon the closing of this offering, an aggregate of 3,749,992 shares were sold to
the following principal stockholders for an aggregate purchase price of
approximately $21 million:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Crest Communications Partners, L.P.......................... 535,713 $ 2,999,997.00
Entities affiliated with CEA Capital Partners USA, L.P...... 535,713 2,999,997.00
Entities affiliated with ABN AMRO Capital (USA), Inc........ 357,142 1,999,998.00
Entities affiliated with Hambrecht & Quist.................. 357,140 1,999,998.00
Entities affiliated with Mayfield X, L.P.................... 1,964,284 11,000,003.00
--------- --------------
Total:...................................................... 3,749,992 $20,999,993.00
========= ==============
</TABLE>
In addition, of the 4,932,308 shares of Series C preferred stock issued,
37,500 shares, 17,857 shares and 17,857 shares were sold to Gerald K. Dinsmore,
Gerard A. Maglio and Edward P. Ziehm, respectively, officers of Jato, for
purchase prices of $210,000, $100,002, and $100,002, respectively. An aggregate
of 1,109,102 shares were sold to other accredited investors.
SERIES B FINANCING
On April 16, 1999 and May 15, 1999, we issued an aggregate of 13,615,322
shares of Series B preferred stock to certain principal stockholders and certain
other investors at a purchase price of $1.50 per share. Of the 13,615,322 shares
of Series B preferred stock issued, which will convert into 19,156,758 shares of
common stock upon the closing of this offering, an aggregate of
12,333,333 shares were sold to the following principal stockholders for an
aggregate purchase price of approximately $18.5 million and an aggregate of
1,281,989 shares were sold to other accredited investors.
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Crest Communications Partners, L.P.......................... 4,000,000 $ 6,000,000.00
Entities affiliated with CEA Capital Partners USA, L.P...... 4,000,000 6,000,000.00
Entities affiliated with ABN AMRO Capital (USA), Inc........ 2,333,333 3,499,999.50
Entities affiliated with Hambrecht & Quist.................. 2,000,000 3,000,000.00
---------- --------------
Total:...................................................... 12,333,333 $18,499,999.50
========== ==============
</TABLE>
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SERIES A FINANCING
On October 23, 1998 and October 30, 1998, we issued an aggregate of
1,143,323 and 608,662 shares, respectively, of Series A preferred stock to
certain principal stockholders and certain other investors at a purchase price
of $0.75 per share. Of the 1,751,985 shares of Series A preferred stock sold by
us, which will convert into 2,465,042 shares of common stock upon the closing of
this offering, 133,333 shares were sold to Gerard A. Maglio, an officer of Jato,
for an aggregate purchase price of approximately $100,000.
REGISTRATION RIGHTS
Pursuant to the second amended and restated investors' rights agreement
dated as of January 20, 2000, as amended, among Jato and certain investors, the
investors have certain registration rights for the shares of common stock held
by them. See "Description of Capital Stock -- Registration Rights" for a
description of these registration rights.
LOANS
In May 1999, Jato loaned $100,000 to Mr. Gast pursuant to his original
employment agreement. The loan will be forgiven as provided in Mr. Gast's
transition agreement. See "-- Employment Agreements and Transition Agreements."
COMMON STOCK PURCHASES
On August 31, 1999, Mr. Dinsmore purchased 703,500 shares of our common
stock pursuant to a restricted stock purchase agreement that is subject to a
repurchase option on our behalf, which is released at a rate of 25% on the first
anniversary of the purchase and the balance ratably over 24 months. The
repurchase option terminates in the event of a change of control of Jato,
termination without cause, or a material reduction in responsibilities or job
title. The purchase price for the restricted common stock was $0.533 per share,
or $375,000 in the aggregate, which was paid for with $5,000 in cash and the
execution of a full recourse promissory note for $370,000, which is secured by a
pledge of the 703,500 shares of restricted common stock. The note bears interest
at a rate of 7% per annum over two years. Subject to Mr. Dinsmore not
terminating his employment with Jato, principal and interest amounts under the
note will be forgiven in two installments of equal amount on the first and
second anniversary of his start date with Jato. Upon each such installment Jato
will pay Mr. Dinsmore $80,000 to cover taxes associated with the forgiveness of
the note. All principal and interest of the note will be forgiven and both
tax-related payments will be paid upon the occurrence of:
- a change of control,
- termination of his employment for reasons other than cause,
- material reduction of responsibilities or duties, or
- a material downgrading of title.
STRATEGIC INVESTMENTS AND RELATIONSHIPS
MICROSOFT. In January 2000, we entered into a strategic relationship with
Microsoft in which Microsoft invested $10 million in us in return for shares of
our Series D preferred stock which will convert into 2,512,499 shares of common
stock upon the closing of this offering. During the term of our two-year
agreement, Jato will use Microsoft products, such as
Microsoft-Registered Trademark- Office, the Microsoft
Outlook-Registered Trademark- messaging and collaboration client, Site Server
Commerce Edition and Microsoft Exchange, to create a variety of ASP services
focused on knowledge management, e-commerce and line-of-business solutions. In
addition, Jato will offer Managed PC Services, a bundled solution consisting of
a
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combination of hardware, software and services provided to customers for a
monthly fee. Jato and Microsoft will cooperatively develop and implement sales
and marketing plans for these products.
QWEST. In February 2000, Qwest invested $10 million in us in return for
shares of our Series D preferred stock which will convert into 2,512,499 shares
of common stock upon the closing of this offering. As a part of this
transaction, Qwest has agreed to certain standstill agreements restricting its
ability to purchase more than 10% of our outstanding capital stock, without our
consent, for a period of five years. In addition, upon the closing of the
concurrent placement, which will close immediately after the closing of this
offering, Qwest will purchase 178,571 shares of common stock (based on an
assumed initial public offering price of $14.00 per share) for an aggregate
purchase price of $2.5 million. In addition, at the closing of the concurrent
placement, we have agreed to issue Qwest a warrant for the purchase of 297,619
shares of common stock (based on an assumed initial public offering price of
$14.00 per share) at an aggregate exercise price of $5.0 million.
Concurrently with Qwest's equity investment in us, we have been designated
as Qwest's preferred provider of business services in selected cities and
central offices. Qwest has agreed to use its reasonable efforts to sell a
minimum of 75,000 business class DSL lines using Jato DSL facilities over five
and one-half years. Moreover, we have agreed to use our reasonable efforts to
supply Qwest with a minimum of 15,000 lines using Qwest's DSL facilities. Both
partners will purchase each line on a one year commitment. We will use Qwest as
one of our preferred suppliers of broadband communications services and
large-scale transport services. As part of our commercial relationship with
Qwest, we have agreed to purchase $25.0 million of these Qwest DSL and network
services over five and one-half years, at an agreed-upon price of
$16.0 million, reflecting the present value of such purchase price, payable to
Qwest upon the closing of the offering.
EMPLOYMENT AGREEMENTS AND TRANSITION AGREEMENTS
We have entered into employment agreements and transition agreements with
certain of our officers. See "Executive Compensation -- Employment Agreements
and Transition Agreements."
OTHER TRANSACTIONS
We intend to enter into indemnity agreements with each of our executive
officers and directors.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.
For information concerning indemnification of directors and officers see
"Description of Capital Stock -- Limitations on Liability and Indemnification
Matters."
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 80,000,000 shares of
common stock, par value $.01 per share and 30,000,000 million shares of
preferred stock, par value $.01 per share.
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
Our authorized common stock consists of 80,000,000 shares, par value $.01
per share. As of March 1, 2000, there were 9,606,908 shares of common stock
outstanding and held of record by 16 stockholders. Upon the closing of this
offering, and after giving the simultaneous conversion of all of our outstanding
shares of preferred stock and the issuance of 178,571 shares of common stock
(based on an assumed initial public offering price of $14.00 per share) to Qwest
upon the closing of the concurrent placement, there will be 53,553,284 shares of
common stock outstanding (assuming no exercise of the underwriters'
over-allotment option).
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our Series A, Series B, Series C and Series D preferred stock will
automatically convert into shares of common stock upon the closing of this
offering. For a description of the terms of our preferred stock, see Note 8 of
the notes to our consolidated financial statements.
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 2,000,000 shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:
- adversely affect the voting power of holders of common stock;
- adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
- delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
WARRANTS
In August 1999, we issued a warrant to purchase 7,035 shares of common stock
at an exercise price of $2.13 per share to one investor. The warrant contains
anti-dilution provisions providing for an
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adjustment of the exercise price and the number of shares of common stock
underlying the warrant upon the occurrence of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. This warrant will expire upon the closing of this offering, unless
earlier exercised.
For a description of a warrant that we are obligated to issue upon the
closing of this offering, please see "Certain Relationships and Related
Transactions -- Strategic Investments and Relationships."
REGISTRATION RIGHTS
Pursuant to the second amended and restated investors' rights agreement
dated as of January 20, 2000, as amended, between Jato and some of our
investors, the investors have registration rights for the 7,912,496 shares of
common stock and the 24,763,900 shares of preferred stock, which is convertible
into 34,842,805 shares of common stock, held by them. Under the rights
agreement, the investors may demand, on no more than two occasions, by written
request from holders of:
- more than 40% of the then outstanding investors' registrable securities
held by (1) those investors who converted their shares of Series A
preferred stock into shares of common stock and (2) Brian E. Gast,
Bruce E. Dines and Leonard Allsup or
- at least 51% of the then outstanding investors' registrable securities
held by those investors who converted their shares of Series B preferred
stock into shares of common stock, that we file a registration statement
under the Securities Act covering all or a portion of the investors'
registrable securities; provided that, in the case of a registration on a
form other than a Form S-3, there is an aggregate offering price to the
public of at least $10.0 million. In addition, the holders of more than
25% of the then outstanding investors' registrable securities may demand,
by written request, that we file a registration statement on Form S-3,
provided that there is an aggregate offering price to the public of at
least $5.0 million. These registration rights are subject to our right to
delay the filing of a registration statement for a period not to exceed
90 days, provided that we cannot delay more than once in a 12-month period
after receiving the registration demand. In the case of a registration on
a form other than Form S-3, the managing underwriter, if any, of any such
offering has certain rights to limit the number of the registrable
securities proposed to be included in such registration.
In addition, the investors under the rights agreement also have "piggyback"
registration rights. If we propose to register any of our securities under the
Securities Act (other than pursuant to the investors' demand registration rights
noted above), the investors may require us to include all or a portion of their
registrable securities in such registration. The managing underwriter, if any,
of any such offering will have the right to limit the number of the registrable
securities to no less than 25% of the total number of securities proposed to be
included in such registration.
All registration expenses incurred in connection with the above
registrations would be borne by us. Each selling investor would pay all
underwriting discounts and selling commissions applicable to the sale of his or
its registrable securities.
All registration rights described above will terminate five years after the
date of our initial public offering. Following the closing of this offering, the
registration rights of each investor will terminate 12 months following the date
when all of the registrable securities held by that investor may be sold under
Rule 144 of the Securities Act during any 90-day period. The holders of
registrable securities have waived their right to include shares in this
offering.
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POSSIBLE ANTI-TAKEOVER MATTERS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
that status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
CLASSIFIED BOARD OF DIRECTORS. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.
BOARD OF DIRECTOR VACANCIES. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock
67
<PAGE>
could render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to us and our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers and to obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol JATO.
TRANSFER AGENT AND REGISTRAR
We have appointed Norwest Bank Minnesota, N.A. to serve as the transfer
agent and registrar for the common stock.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of 53,553,284 shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, the issuance of 8,925,000 shares of common stock upon the
closing of this offering and the issuance of 178,571 shares of common stock
(based on an assumed initial public offering price of $14.00 per share) to Qwest
upon the closing of the concurrent placement at an assumed public offering price
of $14.00 per share and no exercise of options. Of the outstanding shares, the
8,925,000 shares being sold in this offering will be freely tradable, except
that any shares held by our "affiliates" may only be sold in compliance with the
limitations described below. The remaining 44,628,284 shares of common stock
will be "restricted securities" that may be sold in the public market only if
they are registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144, 144(k) or 701 promulgated under the Securities
Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ---------------------------------------------
<S> <C>
0................................. Upon the date of this prospectus (shares
eligible for resale under Rule 144(k) and not
subject to lock-up agreements)
1,097,798................................ 90 days following the date of this prospectus
(shares eligible for resale under Rules 144
and 701 and not subject to lock-up
agreements)
10,226,794................................ 180 days following the date of this
prospectus (lock-up agreements released)
33,303,692................................ After the expiration of the lock-up period
pursuant to Rule 144
</TABLE>
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of:
- 1% of the then-outstanding shares of common stock (approximately 535,533
shares immediately after this offering) or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
In addition, a person who is not considered an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell
such shares under Rule 144(k) without regard to the volume limitations
described above. Securities issued in reliance on Rule 701 (such as shares
of common stock that may be acquired pursuant to the exercise of certain
options granted prior to this offering) are also restricted securities and
may be sold by stockholders other than our affiliates 90 days after the
effective date of this
69
<PAGE>
offering subject only to the manner of sale provisions of Rule 144 and by
our affiliates under Rule 144 without compliance with its one-year holding
period requirement.
In addition, following the completion of this offering, we intend to file a
registration statement to register for resale the 12,240,900 shares of common
stock available for issuance under our stock plan. Accordingly, shares issued
under the plan will become eligible for resale in the public market from time to
time, subject to the lock-up agreements described below and, in the case of
affiliates of Jato, the volume limitations of Rule 144 described above. As of
the date of this prospectus, options and purchase rights to acquire a total of
5,940,225 shares of common stock are outstanding under our stock plans, of which
334,808 are currently exercisable.
Directors, officers and stockholders of Jato holding an aggregate of
43,530,486 shares of common stock have agreed that they will not sell any shares
of common stock without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, for a period of 180 days from the date of this
prospectus. Please refer to our discussion in "Underwriting" for further
discussion of these agreements.
We have agreed not to sell or otherwise dispose of, or file a registration
statement with respect to, any shares of common stock during the 180-day period
following the date of this prospectus, other than the grant of options and
purchase rights under our stock plan and the issuance of common stock pursuant
thereto.
Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion under "Description of Capital Stock --
Registration Rights" for further discussion of these registration rights.
70
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns &
Co. Inc. and Thomas Weisel Partners LLC are acting as representatives of each of
the underwriters named below. Subject to the terms and conditions described in a
purchase agreement among us and the underwriters, we have agreed to sell to the
underwriters, and each underwriter severally has agreed to purchase from us, the
numbers of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Bear, Stearns & Co. Inc.....................................
Thomas Weisel Partners LLC..................................
Total............................................ 8,925,000
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares of common stock, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the shares, and other
conditions contained in the purchase agreement, such as the receipt by the
underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to dealers at that
price less a concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $ per share
to other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. The information assumes either no exercise
or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price.............................. $ $ $
Underwriting discount.............................. $ $ $
Proceeds, before expenses, to Jato................. $ $ $
</TABLE>
We expect to incur expenses of approximately $ in connection with
this offering.
71
<PAGE>
OVER-ALLOTMENT OPTION
We and the selling stockholders have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 1,338,750 additional shares of common stock, at the public
offering price set forth on the cover page of this prospectus, less the
underwriting discount. The underwriters may exercise this option solely to cover
any over-allotments. To the extent that the underwriters exercise this option,
each of the underwriters will be obligated, subject to conditions contained in
the purchase agreement, to purchase a number of additional shares of our common
stock proportionate to that underwriter's initial amount reflected in the
foregoing table. See "Principal and Selling Stockholders."
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 600,000 shares offered by this prospectus, for sale
to some of our employees, directors, officers and their friends and family
members, as well as to some of the employees of our strategic partners. If these
persons purchase reserved shares, this will reduce the number of shares of our
common stock available for sale to the general public. Any reserved shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our officers and directors and substantially all of our existing
stockholders have agreed, with certain exceptions, not to sell or transfer any
common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly
- offer, pledge, sell or contract to sell, sell any option or contact to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of, lend or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock whether now owned or
later acquired by the person executing the agreement or with respect to
which the person executing the agreement later acquires the power of
disposition; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares to be approved for quotation on the Nasdaq National
Market under the symbol "JATO."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public offering price
are
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues,
72
<PAGE>
- the present state of our development and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives may engage in transactions that
stabilize the price of our common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce the underwriters' short position or to stabilize the
price of such shares, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares. The imposition
of a penalty bid might also have an effect on the price of our common stock to
the extent that it discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates may in the future engage in
investment banking and other commercial dealings in the ordinary course of
business with us, for which they may receive customary compensation.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
118 filed public offerings of equity securities, of which 86 have been
completed, and has acted as a syndicate member in an additional 57 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
73
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Baker & McKenzie, New York, New York will
pass upon certain legal matters in connection with the offering for the
underwriters. An investment partnership affiliated with Cooley Godward LLP owns
33,333 shares of our preferred stock which will convert into 46,899 shares of
our common stock upon the completion of this offering.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement as of December 31, 1998 and
December 31, 1999 and from June 12, 1998 (date of inception) to December 31,
1998 and for the year ended December 31, 1999 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. In each instance, please refer to the copy of
that contract, agreement or document filed as an exhibit to the registration
statement.
You may read and copy all or any portion of the registration statement or
any other information the company files at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing interim financial information.
74
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999.................................................... F-3
Consolidated Statements of Operations for the period from
June 12, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the period from June 12, 1998 (date of inception) to
December 31, 1998 and for the year ended December
31,1999................................................. F-5
Consolidated Statements of Cash Flows for the period from
June 12, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
After the forward stock split discussed in Note 10 to the Company's
consolidated financial statements is effected, we expect to be in the position
to render the following audit report.
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jato Communications Corp.:
We have audited the accompanying consolidated balance sheets of Jato
Communications Corp. (a Delaware corporation) and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1999 and for the period from June 12, 1998 (date of inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jato
Communications Corp. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and cash flows for the year ended
December 31, 1999 and for the period from June 12, 1998 (date of inception) to
December 31, 1998 in conformity with generally accepted accounting principles.
Denver, Colorado,
February 9, 2000
(except with respect to the
matters discussed in Note 10,
as to which the date is
, 2000).
F-2
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $1,270 $ 15,017
Trade accounts receivable................................. -- 255
Inventory................................................. -- 486
Prepaid expenses and other current assets................. 12 202
------ --------
Total current assets........................................ 1,282 15,960
Property and Equipment:
Networking equipment...................................... 3 17,410
Central office collocation space improvements............. 22 16,070
Computer equipment and software........................... 17 2,852
Furniture and fixtures.................................... 16 1,601
------ --------
Total property and equipment................................ 58 37,933
Accumulated depreciation.................................. (1) (470)
------ --------
Net property and equipment.................................. 57 37,463
Restricted cash............................................. -- 500
Note receivable from officer................................ -- 67
Deferred financing costs, net............................... -- 1,169
Other noncurrent assets..................................... 27 432
------ --------
Total assets............................................ $1,366 $ 55,591
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 73 $ 1,679
Accrued expenses and other current liabilities............ 211 1,936
------ --------
Total current liabilities................................... 284 3,615
Long-term debt.............................................. -- 16,868
------ --------
Total liabilities........................................... 284 20,483
Commitments and Contingencies
Stockholders' Equity:
Convertible Preferred Stock, $0.01 par value, 30,000,000
shares authorized;
Series A Convertible preferred stock, 3,000,000 and
1,751,985 shares authorized, respectively; 1,751,985
shares issued and outstanding, respectively............ 1,301 1,301
Series B Convertible preferred stock, none and
13,615,322 shares authorized, respectively; none and
13,615,322 issued and outstanding, respectively........ -- 20,174
Series C Convertible preferred stock, none and 8,550,000
shares authorized, respectively, none and 4,932,308
shares issued and outstanding, respectively............ -- 27,561
Common Stock, $.01 par value, 40,000,000 and 80,000,000
shares authorized, respectively; 8,793,752 and 9,564,524
shares issued and outstanding, respectively............. 88 96
Additional paid-in capital................................ 89 14,967
Deferred compensation..................................... -- (13,735)
Accumulated deficit....................................... (396) (15,256)
------ --------
Total stockholders' equity.................................. 1,082 35,108
------ --------
Total liabilities and stockholders' equity.............. $1,366 $ 55,591
====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 12, 1998 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
---------------------- ------------
<S> <C> <C>
Revenues.................................................... --$ $ 315
Operating Expenses:
Network and service costs................................. -- 1,170
Marketing expenses........................................ -- 1,919
Selling, general and administrative....................... 404 11,152
Amortization of deferred compensation..................... -- 843
Depreciation and amortization............................. 1 469
------ --------
Operating loss.............................................. (405) (15,238)
Interest income........................................... 9 838
Interest expense.......................................... -- (431)
Other, net................................................ -- (29)
------ --------
Net loss.................................................... $ (396) $(14,860)
====== ========
Basic and diluted loss per common share..................... $(0.05) $ (1.64)
====== ========
Weighted average common shares outstanding-and diluted...... 8,266 9,053
====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
-------- -------- -------- -------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization,
including retroactive effect
of stock splits.............. -- $ -- 7,879 $79 $ 41 $ -- $ -- $ 120
Issuance of common stock in
August 1998 for cash of $0.05
per share.................... -- -- 732 7 29 -- -- 36
Issuance of common stock in
October 1998 for cash of
$0.11 per share.............. -- -- 183 2 19 -- -- 21
Issuance of Series A
convertible preferred stock,
net of offering costs of
$13.......................... 1,752 1,301 -- -- -- -- -- 1,301
Net loss....................... -- -- -- -- -- -- (396) (396)
------ ------- ----- --- ------- -------- -------- --------
Balances at December 31,
1998......................... 1,752 1,301 8,794 88 89 -- (396) 1,082
Issuance of Series B
convertible preferred stock,
net of offering costs of
$178......................... 13,615 20,245 -- -- -- -- -- 20,245
Issuance of warrants for common
stock pursuant to sale of
Series B convertible
preferred stock, at fair
value........................ -- (71) -- -- 71 -- -- --
Issuance of common stock
pursuant to exercise of stock
options...................... -- -- 28 1 16 -- -- 17
Issuance of common stock
options and warrants for
common stock to consultants,
at fair value................ -- -- -- -- 74 -- -- 74
Issuance of common stock in
August 1999 for cash of $1.07
per share, at fair value..... -- -- 11 -- 29 -- 29
Issuance of common stock in
August 1999 for cash of $2.13
per share, at fair value..... -- -- 28 -- 110 -- -- 110
Issuance of restricted common
stock, at fair value......... -- -- 704 7 5,664 (5,664) -- 7
Issuance of Series C
convertible preferred stock,
net of offering costs of
$59.......................... 4,932 27,561 -- -- -- -- -- 27,561
Deferred compensation.......... -- -- -- -- 8,914 (8,914) -- --
Amortization of deferred
compensation................. -- -- -- -- -- 843 -- 843
Net loss....................... -- -- -- -- -- -- (14,860) (14,860)
------ ------- ----- --- ------- -------- -------- --------
Balances at December 31,
1999......................... 20,299 $49,036 9,565 $96 $14,967 $(13,735) $(15,256) $ 35,108
====== ======= ===== === ======= ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 12, 1998 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
---------------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (396) $(14,860)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................. 1 469
Amortization of deferred compensation..................... -- 843
Amortization of deferred financing costs.................. -- 66
Other non-cash expenses................................... -- 176
Changes in current assets and current liabilities:
Accounts receivable..................................... -- (255)
Inventory............................................... -- (486)
Prepaid expenses and other current assets............... (12) (190)
Accounts payable........................................ 73 1,606
Accrued expenses and other current liabilities.......... 211 1,725
------ --------
Net cash flows from operating activities.................... (123) (10,906)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (58) (21,156)
Cash and cash equivalents used to collateralize standby
letters of credit......................................... -- (500)
Issuance of note receivable to officer...................... -- (100)
Other noncurrent assets..................................... (27) (405)
------ --------
Net cash flows from investing activities.................... (85) (22,161)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock.......................... 177 77
Proceeds from exercise of common stock options.............. -- 17
Proceeds from sale of Series A preferred stock.............. 1,314 --
Proceeds from sale of Series B preferred stock.............. -- 20,423
Proceeds from sale of Series C preferred stock.............. -- 27,620
Preferred stock offering costs.............................. (13) (237)
Deferred financing costs.................................... -- (1,086)
------ --------
Net cash flows from financing activities.................... 1,478 46,814
------ --------
Net increase in cash and cash equivalents................... 1,270 13,747
Cash and cash equivalents, beginning of period.............. -- 1,270
------ --------
Cash and cash equivalents, end of period.................... $1,270 $ 15,017
====== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Borrowings for property, plant and equipment under credit
facility................................................ --$ $ 16,719
Deferred financing costs paid by credit facility.......... -- 149
Cash paid for interest.................................... -- 36
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
THE COMPANY
Jato Communications Corp. (Jato, or the Company), a Delaware corporation,
was formed in June 1998 to provide high-speed digital communications services
using digital subscriber line (DSL) technology. Prior to December 1999, Jato had
not commenced principal operations nor generated significant revenues and was
therefore considered to be a development stage enterprise in accordance with
Statement of Financial Accounting Standards (SFAS) No. 7 "Accounting and
Reporting by Development Stage Enterprises." The Company is no longer considered
a development stage enterprise.
The Company is aggressively deploying its network and DSL Services. The
Company believes that its cash and cash equivalents at December 31, 1999,
additional equity capital raised during January and February 2000 (see Note 10)
and availability under its senior secured credit facility will be adequate to
sustain its current level of operations through June of 2000. As the Company
continues the development of its business, it will use currently available funds
while seeking additional sources of financing, including expected proceeds from
this offering. Management believes the Company will have access to additional
capital; however, if unsuccessful in obtaining additional financing, the Company
will continue expansion of its operations on a significantly reduced scale based
on its existing capital resources. While the Company believes it would be able
to sustain some level of operations through the end of 2000 absent any
additional capital, it would be required to significantly scale back operations
and delay network expansion. This would have a material adverse effect on the
Company's business, financial condition and results of operations. Management
cannot be assured that additional capital will be available on terms acceptable
to the Company.
The Company's operations are subject to significant risks and uncertainties
including competitive, financial, developmental, operational, technological,
regulatory and other risks associated with an emerging and growing business. The
Company expects to continue to report operating and net losses as it develops
its network and expands its customer base. Improvements in Jato's future results
of operations are largely dependent upon its ability to attract high-quality
customers in a highly competitive, relatively immature market while controlling
its overall cost structure, including costs associated with adding new
customers. There can be no assurance that Jato will be successful with regard to
these matters.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the operations
of the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses for each reporting
period. Actual results could differ from those estimates.
F-7
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid monetary investments with an
original maturity of 90 days or less at the date of purchase to be cash
equivalents. Cash equivalents as of December 31, 1998 and 1999 consist
principally of money market funds, commercial paper and other short-term,
interest bearing, high-grade securities. These balances are stated at cost which
approximates market value.
CONCENTRATION OF CREDIT RISK
As of December 31, 1999, three customers comprised 21%, 19% and 15% of the
Company's trade receivables balance and approximately 16%, 17% and 11% of
revenues, respectively, for the year ended December 31, 1999.
INVENTORY
Inventory consists of communications equipment that will be installed at
customer locations. Inventory is accounted for using the first-in, first-out
method at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided over
the estimated useful lives of the assets (3-7 years) using the straight-line
method. Maintenance and repairs are expensed as incurred and the costs of
betterments are capitalized.
Central office collocation space improvements represent payments to
incumbent carriers for infrastructure improvements within their central offices
to allow Jato to install its equipment. These improvements allow Jato to
interconnect with the carrier's network. These payments are capitalized and are
amortized over an estimated useful life of five years.
The Company capitalizes costs associated with the design and implementation
of its network, including internally and externally developed software.
Capitalized external software costs include the actual costs to purchase
existing software from vendors. Capitalized internal costs generally include
personnel costs incurred in the enhancement and implementation of purchased
software packages.
LONG-LIVED ASSETS
Jato investigates potential impairments of its long-lived assets on an
exception basis when evidence exists that events or changes in circumstances may
have made recovery of an asset's carrying value unlikely. An impairment loss is
recognized when the sum of the expected undiscounted future net cash flows is
less than the carrying amount of the assets. No such losses have been
identified. Recoverability of long-lived assets is dependent upon successful
execution of Jato's business plan, among other factors.
RESTRICTED CASH
As of December 31, 1999, the Company had $500,000 in commercial deposits
held in the Company's name but restricted as security for certain of the
Company's standby letters of credit.
F-8
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Jato presently derives revenue from two principal sources: transport
services and installation and activation services. Transport services represent
monthly recurring service revenues and are recognized in the period the services
are provided. Amounts billed in advance of providing services are recorded as
deferred revenue until the period the services are provided. Installation and
activation services represent services provided to configure customer premise
and other equipment in connection with the installation and activation of Jato's
transport services. Such revenues are recognized in the period the services are
completed. Revenues earned from installation and activation services represent
amounts charged to recover direct costs. Direct costs in excess of revenues
earned are expensed in the period incurred. To date, revenues earned from
installation and activation have not significantly exceeded direct costs.
ADVERTISING AND SALES PROMOTION COSTS
Advertising and sales promotion costs are expensed as incurred. No such
costs were incurred during 1998. Advertising expenses totaled $1.9 million for
the year ended December 31, 1999.
INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established as necessary to reduce net
deferred tax assets to the amounts expected to be realized.
BASIC AND DILUTED LOSS PER SHARE
Basic and diluted loss per share amounts are presented below in accordance
with the requirements of SFAS No. 128, "Earnings Per Share." Basic net loss per
share is computed by dividing net loss applicable to common stockholders by the
weighted average number of shares of the Company's common stock outstanding
during the period after giving consideration to shares subject to repurchase.
Diluted net loss per share is determined in the same manner as basic net loss
per share except that the number of shares is increased assuming exercise of
dilutive stock options and warrants using the treasury stock method and
conversion of the Company's convertible preferred stock. As of December 31, 1998
and 1999, options to purchase 70,350 and 5.8 million shares of common stock were
outstanding, respectively. Common stock equivalents (stock options and warrants)
are excluded from the calculation of diluted loss per share, as they are
antidilutive. The Series A, Series B and Series C convertible preferred stock
that are convertible into shares of common stock also are excluded from the
F-9
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculation of diluted loss per share as they are antidilutive. The following
table presents the calculation of basic and diluted loss per share (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Net loss................................... $ (396) $(14,860)
------ --------
Basic and Diluted:
Weighted-average common shares
outstanding.............................. 8,266 9,053
------ --------
Basic and diluted loss per share........... $(0.05) $ (1.64)
====== ========
Shares of common stock issuable upon
conversion of:
Series A convertible preferred stock....... 2,465 2,465
Series B convertible preferred stock....... -- 19,157
Series C convertible preferred stock....... -- 6,940
Options for commons stock issued to
employees................................ 70 5,677
Options for common stock issued to
consultants.............................. 56
Warrants for common stock issued to non-
employees................................ -- 35
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for each period presented is computed using the
net loss and weighted average number of common shares outstanding, including the
pro forma effects of the assumed conversion of the Company's Series A, B and C
convertible preferred stock into shares of the Company's common stock, as those
shares automatically convert to the Company's common stock pursuant to an
initial public offering. The pro forma effects assume that each conversion
occurred on January 1 of the respective year, or at the date of original
issuance, if later.
The unaudited pro forma effects of each of these transactions are as
follows:
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Pro forma basic and diluted loss per common
share.................................... $(0.04) $ (0.64)
====== =======
Pro forma weighted average common shares
outstanding-basic and diluted............ 9,036 23,099
====== =======
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees," and
F-10
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
related interpretations, and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company accounts for
equity instruments issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18 "Accounting for
Equity Investments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services."
COMPREHENSIVE LOSS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." The
adoption of this statement had no impact on the Company's consolidated financial
statements for the periods presented, as net loss has been the same as
comprehensive loss since inception.
SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The "management" approach to segment
reporting required by SFAS No. 131 designates the internal organization that is
used by top management for making operating decisions and assessing performance
as the source of the Company's reportable segments. Jato presently operates in
one segment: High-speed network and data transport services.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance that requires capitalization of certain costs incurred during an
internal-use software development project. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The adoption of this policy has not had
a material effect on the Company's consolidated results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Jato has not
capitalized any such costs to date. Accordingly, the adoption of SOP 98-5 has
not had an impact on Jato's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Among other
things, this statement requires that an entity recognize all derivative
instruments on the balance sheet as either assets or liabilities, and to account
for those instruments at fair value. SFAS No. 133 must be applied to financial
statements no later than the first fiscal quarter of 2001. The Company does not
believe adoption will have a material impact on its consolidated financial
position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the first fiscal quarter of 2000. The Company does not believe
adoption will have a material impact on its consolidated financial position or
results of operations.
F-11
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
3. NOTE RECEIVABLE FROM OFFICER
In May 1999, pursuant to an employment agreement, Jato loaned $100,000 to
one of its executive officers. This note receivable is a non-recourse loan
secured by a pledge of that executive officer's common stock. The note
receivable is due in May 2002 and bears interest at an annual rate of 5.0%,
compounded quarterly. Principal and interest are due at maturity, unless
forgiven. In accordance with the terms of the employment agreement, one-third of
the principal and one-third of the accrued interest were forgiven on
December 31, 1999. The remaining principal balance and any accrued interest will
be forgiven in equal installments on December 31, 2000 and 2001 provided that
the executive officer is employed with Jato. If the executive officer
voluntarily terminates his employment with Jato, principal and interest shall be
due and fully payable on December 31, 2001. The Company is amortizing this
principal and interest related to this loan to compensation expense over the
term of the loan.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Payroll..................................................... $204 $ 561
Litigation settlement....................................... -- 300
Taxes....................................................... -- 312
Rent........................................................ -- 283
Interest.................................................... -- 179
Other....................................................... 7 301
---- ------
$211 $1,936
==== ======
</TABLE>
5. CREDIT FACILITY
In July 1999, Jato Operating Corp, a wholly-owned subsidiary formed in
April 1999, entered into a senior secured credit facility with a third-party
vendor that provides for up to $50 million of financing for equipment and
network services provided by the vendor. The $50 million is available to the
Company in two separate tranches. The first tranche of $30 million must be drawn
down upon by July 2001. The second tranche of $20 million becomes available upon
the full utilization or expiration of the first tranche and must be drawn down
upon by July 2002. Borrowings under the facility bear interest at the rate of
LIBOR plus 4.5% per year or an alternative base rate, which is generally equal
to the greater of 3.5% over the Prime Rate or 4% over the federal funds rate per
year. The facility requires quarterly interest payments.
F-12
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CREDIT FACILITY (CONTINUED)
Principal installments are due at the end of each fiscal quarter in
accordance with the following schedule:
<TABLE>
<S> <C>
- -- September 2002 to June 2003.............................. 2.50%
- -- September 2003 to June 2004.............................. 5.00%
- -- September 2004 to June 2005.............................. 8.75%
- -- September 2005 to March 2006............................. 8.75%
</TABLE>
Any principal amount that is outstanding after March 2006 is due on May 31,
2006. The facility is fully and unconditionally guaranteed by Jato, and each
direct or indirect subsidiary of Jato Operating Corp. Borrowings under the
senior secured credit facility are restricted based upon the Company's leverage
ratio and capitalization. Upon closing, the Company was permitted to borrow the
entire first tranche of $30 million. The facility is secured by liens against
certain of the Company's network equipment and imposes certain financial and
other covenants. Direct costs incurred in connection with this credit facility
are capitalized and being amortized to interest expense over the term of the
facility. Amounts outstanding under the credit facility as of December 31, 1999
bore interest at 10.625%.
6. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Current tax expense:
Federal.................................. -- $ $--
State.................................... -- --
----- -------
-- --
----- -------
Deferred tax expense (benefit):
Federal.................................. (135) (4,656)
State.................................... (13) (466)
Increase in valuation allowance for
deferred tax assets.................... 148 5,122
----- -------
-- --
----- -------
Total provision (benefit).............. -- $ $--
===== =======
</TABLE>
F-13
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The primary components of temporary differences that give rise to deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Current deferred tax assets:
Accrued expenses.......................................... $ 76 $ --
Valuation allowance....................................... (76) --
---- -------
Net current deferred tax assets............................. -- --
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 57 11,699
Other..................................................... 15 --
---- -------
Total noncurrent deferred tax assets........................ 72 11,699
Noncurrent deferred tax liabilities:
Capitalized network costs................................. -- (6,210)
Excess of tax over book depreciation...................... -- (310)
---- -------
Total noncurrent deferred tax assets........................ 72 5,179
Valuation allowance......................................... (72) (5,179)
---- -------
Net noncurrent deferred tax assets.......................... -- --
---- -------
Net deferred tax assets..................................... $-- $ --
==== =======
</TABLE>
The actual tax provision for 1998 and 1999 is reconciled to the amounts
computed by applying the statutory Federal tax rate to income before taxes as
follows:
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Statutory rate............................. 34.0% 34.0%
State income taxes, net of Federal
effect................................... 3.4 3.4
Valuation allowance........................ (37.4) (37.4)
----- -----
Income tax provision....................... -- % -- %
===== =====
</TABLE>
Due to the uncertainty surrounding the realization of the Company's deferred
tax assets through future taxable income, Jato has recorded a valuation
allowance against its net deferred tax assets as of December 31, 1998 and 1999.
Management evaluates the recoverability of the deferred tax asset and the level
of the valuation allowance on an ongoing basis. At such time as it is determined
that it is more likely than not that the deferred tax asset will be realizable,
the valuation allowance will be reduced. Future adjustments to the valuation
allowance will be recognized as a separate component of Jato's provision for
income taxes. As of December 31, 1999, Jato had a net unused operating loss
carryforward of approximately $31.3 million, which begins to expire in 2018.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancelable operating leases. Rent
expense under operating leases was $15,000 and $284,000 for the period from
June 12, 1998 (date of inception) to
F-14
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
December 31, 1998 and for the year ended December 31, 1999, respectively. Future
minimum lease payments under noncancelable operating leases as of December 31,
1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,159
2001........................................................ 1,166
2002........................................................ 1,101
2003........................................................ 749
2004........................................................ 375
Thereafter.................................................. --
------
Total minimum lease payments............................ $4,550
======
</TABLE>
GTE SETTLEMENT
In December 1999, GTE Service Corporation and GTE Corporation (GTE) filed a
lawsuit against the Company and an executive officer of the Company who was
formerly employed by GTE. The lawsuit alleged that the Company and the executive
officer violated certain non-inducement and non-hire provisions of the
executive's separation agreement with GTE. In December 1999, the lawsuit was
settled. Under the terms of the settlement agreement, the Company, without
admitting any fault, agreed to pay GTE $100,000 in cash and issued a $200,000
note payable to GTE. This liability is included in other current liabilities on
the accompanying consolidated balance sheet. The note payable is interest-free
and due the earlier of the completion of an initial public offering of the
Company's stock or March 1, 2000. The Company also agreed to pay GTE an
additional $300,000 in the event that the Company violates certain non-hire
provisions of the settlement agreement.
OTHER MATTERS
The Company is subject to decisions of state public utility commissions, the
Federal Communications Commission and the courts as they relate to the
interpretation and implementation of the Telecommunications Act of 1996, the
interpretation of competitive carrier interconnection agreements in general and
the Company's interconnection agreements in particular. In some cases the
Company may be bound by the results of ongoing proceedings of these bodies or
the legal outcomes of other contested interconnection agreements that are
similar to the Company's agreements. The Company cannot currently estimate the
effect, if any, of these proceedings on future financial results.
8. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company has 30,000,000 authorized shares of preferred stock, of which
1,751,985 shares are designated as "Series A" preferred stock, 13,615,322 are
designated as "Series B" and 8,550,000 are designated as "Series C". During
October 1998, the Company sold 1,751,985 shares of Series A convertible
preferred stock resulting in net proceeds to the Company of $1.3 million. In
April and May 1999, the Company sold 13,615,322 shares of Series B convertible
preferred stock resulting in net proceeds to the Company of approximately
$20.2 million. In September 1999, the Company sold 4,932,308 shares of Series C
convertible preferred stock resulting in net proceeds to the Company of
approximately $27.6 million.
F-15
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
DIVIDENDS
The holders of Series A, Series B and Series C preferred stock are entitled
to participate equally in the payment of all dividends with, but payable as a
priority to payment to, the holders of common stock on an as-converted basis
when and if declared by the Board of Directors. No such dividends have been
declared or paid to date.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution, or winding up of the Company,
including a change of control, the holders of Series A, Series B and Series C
preferred stock are entitled to receive, in preference to the holders of common
stock, an amount per share equal to the greater of (a) the respective original
issue price, as adjusted for any stock splits, stock dividends or the like, plus
all declared but unpaid dividends thereon and (b) such amount as would have been
received had each share of Series A, Series B or Series C preferred stock been
converted into shares of common stock immediately prior to the occurrence of
such event.
CONVERSION RIGHTS
Each share of Series A, Series B and Series C preferred stock is
convertible, at the option of the holder, into shares of common stock, subject
to adjustment upon the occurrence of certain dilutive issuances, stock splits or
combinations (see Note 10).
Each share of Series A preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price, (a) at any
time upon the affirmative election of the holders of a majority of the
outstanding Series A preferred stock or (b) immediately upon the sale of Jato's
common stock in a firm commitment public offering pursuant to which the public
offering proceeds are at least $1.34 per share and the aggregate gross cash
proceeds to Jato are at least $10 million.
Each share of Series B preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price,
(a) immediately upon the sale of Jato's common stock in a firm commitment public
offering in which (i) the per share price is at least equal to $2.67 (if prior
to April 2002) or $3.73 (if after April 2002), (ii) the aggregate gross cash
proceeds to Jato are at least $30 million and (iii) the shares of common stock
are listed on any national securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934 or (b) if, during a
180 day period following the closing of a firm commitment public offering that
does not meet the criteria specified in (a) above, the average closing price of
Jato's common stock exceeds $2.67 (if prior to April 2002) or $3.73 (if after
April 2002).
Each share of Series C preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price,
(a) immediately upon the sale of Jato's common stock in a firm commitment public
offering in which (i) the per share price is at least equal to $5.97 and
(ii) the aggregate gross cash proceeds to Jato are at least $30 million.
Each series of preferred stock carries provisions that protect the holders
of such securities from dilution caused by capital reorganizations, stock splits
or other similar occurrences.
F-16
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
REDEMPTION RIGHTS
No series of convertible preferred stock is redeemable.
VOTING RIGHTS
The holders of each series of preferred stock are entitled to vote on all
matters and entitled to the number of votes equal to the whole number of shares
of common stock into which the preferred stock could be converted pursuant to
the conversion rights. The holders of preferred stock shall vote together with
holders of common stock and not as a separate class at any annual or special
meeting of stockholders.
In addition to any other vote or consent required by law or otherwise, the
vote or written consent of the holders of a majority of the outstanding
Series B preferred stock is necessary for the Company to take any of the
following actions:
- Amend, alter or repeal any provision of the Company's certificate of
incorporation or its Bylaws;
- Authorize any new class or series of stock or any other securities
convertible or exchangeable for equity securities of the Company ranking
on a parity with or senior to the Series B preferred stock in right of
liquidation preference or dividends;
- Enter into an agreement regarding an acquisition or asset transfer, as
defined;
- Initiate bankruptcy or other similar proceedings or appoint a receiver,
trustee, custodian or other similar person;
- Consummate an initial public offering;
- Redeem, purchase, pay dividends or make other distributions with respect
to any of the Company's capital stock;
- Issue bonds, debentures, notes or other debt obligations convertible into,
or exchangeable for, or having rights to purchase, shares of the Company's
common stock, unless (i) otherwise approved by the Company's Board of
Directors, including at lease two designees of the Series B preferred
stock, (ii) the per share cash consideration exceeds the then-applicable
Series B conversion price (as defined) and (iii) the Company's Board of
Directors, including the Series B designees, determines that the per share
cash consideration is at least equal to the then-current fair market value
of the Company's common stock;
- Issue capital stock that ranks junior to the Series A and Series B
preferred stock, except (i) approved issuances (as defined); (ii) in
connection with a qualified offering, and (iii) such as may otherwise be
approved by the Company's Board of Directors;
- Issue any option, warrant put, call or other arrangement for the purchase
or acquisition of any capital stock of the Company, other than approved
issuances (as defined);
- Change the authorized number of members of the Company's Board of
Directors; or
- Issue additional shares of Series A preferred stock.
F-17
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The holders of Series B preferred stock, voting as a separate class on an
as-converted basis, shall be entitled to elect two members of the Company's
Board of Directors. The holders of common stock, Series A preferred stock and
Series B preferred stock, voting together as a class, on an as-converted basis,
are entitled to elect all remaining members of the Board of Directors.
In addition to any other vote or consent required by law or otherwise, the
vote or written consent of the holders of a majority of the outstanding
Series C preferred stock is necessary for the Company to (i) amend, alter or
repeal any provision of the Company's certificate of incorporation or its Bylaws
or (ii) authorize any new class or series of stock or any other securities
convertible or exchangeable for equity securities of the Company ranking senior
to the Series C preferred stock in right of liquidation preference or dividends.
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Conversion of:
Series A preferred stock............................ 2,465,042 2,465,042
Series B preferred stock............................ -- 19,156,758
Series C preferred stock............................ -- 6,939,757
1998 Equity Incentive Plan............................ 4,467,225 7,984,725
Warrants for common stock issued to consultants....... -- 35,175
--------- ----------
6,932,267 36,581,457
========= ==========
</TABLE>
In August 1998, the Company declared a 2:1 forward stock split, in the form
of a stock dividend, on its common stock. The accompanying consolidated
financial statements have been restated to reflect this stock split, since
inception.
9. STOCK OPTIONS AND OTHER STOCK AWARDS
In August 1998, the Company adopted the 1998 Equity Incentive Plan pursuant
to which the Board of Directors may grant stock awards to employees, directors
and consultants. As of December 31, 1999, Jato has reserved 7,984,725 shares of
common stock for granting awards under the Plan. Stock awards may consist of
incentive or nonstatutory stock options, stock appreciation rights, stock
bonuses, or restricted stock awards. Generally, stock options become exercisable
at a rate of 25% at the end of the first year following the vesting commencement
date and 1/48(th) of the total grant per month of employment thereafter, and
expire after a maximum term of ten years.
In August 1999, the Company entered into a restricted stock agreement
pursuant to the 1998 Equity Incentive Plan with one of its executive officers
for the purchase of 703,500 shares of restricted common stock. The restricted
stock was purchased with a $370,000 promissory note issued to the Company by the
employee. The note is due in August 2001 and is secured by a pledge of the
restricted common stock. The Company has agreed to forgive the promissory note
in two equal annual installments beginning August 31, 2000, provided the
employee is still employed with Jato as of such dates. Accordingly, the Company
has recorded the restricted stock award at the estimated fair market
F-18
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS AND OTHER STOCK AWARDS (CONTINUED)
value on the date of the award as deferred compensation and is amortizing the
amount as a charge to operations over the vesting period of the restricted
common stock, which is three years.
Plan activity for the period from June 12, 1998 (date of inception) to
December 31, 1998, and for the year ended December 31,1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
-------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding, beginning of period............... -- $-- 70,350 $1.07
Granted................................................ 70,350 1.07 6,178,770 2.03
Exercised.............................................. -- -- (28,140) 0.63
Forfeited.............................................. -- -- (487,525) 2.88
------ ----- --------- -----
Options outstanding, end of period..................... 70,350 $1.07 5,733,455 $1.95
====== ===== ========= =====
Exercisable at end of period........................... -- $-- 180,152 $1.69
====== ===== ========= =====
</TABLE>
Exercise prices for employee awards outstanding as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE WEIGHTED-
AS OF REMAINING WEIGHTED- AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE EXERCISE PRICE 1999 PRICE
- --------------- ------------ ----------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$1.07 3,153,790 9.43 $1.07 136,888 $1.07
1.83 1,125,600 9.92 1.83 -- 1.83
3.55 84,420 9.70 3.55 31,657 3.55
3.98 1,369,645 9.86 3.98 11,607 3.98
--------- ---- ----- ------- -----
$1.07-$3.98.. 5,733,455 9.64 $1.95 180,152 $1.69
========= ==== ===== ======= =====
</TABLE>
The Company believes that all employee stock awards granted prior to
May 1999 were granted at or above fair market value on the date of grant.
Subsequent to May 1999, for financial reporting purposes, the Company has
determined that the deemed fair market value on the date of grant of certain
stock awards exceeded the exercise price of the related award. As a result,
during the year ended December 31, 1999, the Company recorded deferred
compensation of $14.8 million. This amount was recorded as a reduction of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the applicable awards. For the year ended December 31, 1999,
the Company recognized approximately $843,000 of stock compensation expense.
Pro forma information regarding net loss and loss per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
stock-based compensation plans using the fair value method prescribed by that
statement. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. All
options are initially assumed to vest. Compensation previously recognized is
reversed to the extent applicable to forfeitures of unvested options. Had
compensation cost for the Company's stock-based compensation
F-19
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS AND OTHER STOCK AWARDS (CONTINUED)
plans been determined consistent with SFAS No. 123, the Company's net loss and
loss per share for the year ended December 31, 1999 would have been as follows
(in thousands, except per share amounts):
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(14,860)
Pro forma under SFAS No. 123.............................. $(17,658)
Basic and diluted loss per share:
As reported............................................... $ (1.64)
Pro forma under SFAS No. 123.............................. $ (1.95)
</TABLE>
The weighted-average fair value of stock options granted during the period
from June 12, 1998 (date of inception) to December 31, 1998 and during the year
ended December 31, 1999 was $0.21 and $3.10, respectively.
The fair value of each employee stock option award was estimated at the date
of the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 5.6%, expected dividend
yield of 0%, expected life of four years, and expected volatility of .001%.
The fair value of options and warrants issued to non-employees were recorded
at the fair value of the option or warrant at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate ranging from 5.3% to 5.7%, expected
dividend yield of 0%; expected life ranging from one to five years, and expected
volatility of 100%. The estimated fair values of the stock options and warrants
issued to non-employees range from $0.76 to $2.54 per share.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock-based compensation awards.
10. SUBSEQUENT EVENTS
In January and February of 2000, the Company sold an aggregate of 4,464,285
of Series D convertible preferred stock to Microsoft Corporation, a wholly-owned
subsidiary of Qwest Communications Corporation and Global Crossing
Bandwidth, Inc. for gross proceeds of approximately $25 million. Holders of
Series D preferred stock have rights equal to those of Series C stockholders as
they relate to dividends, liquidation preference, conversion and voting (See
Note 8).
In February of 2000, the Company entered into a commercial relationship with
Qwest Communications Corporation. Among other things, the Company agreed to
purchase $25 million of services over five and one-half years, beginning
February 9, 2000, at a price of $16.0 million, which represents the present
value of the purchase price.
F-20
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
In February of 2000, the Company entered into a commercial relationship with
Global Crossing Bandwidth, Inc. whereby the Company has agreed to purchase
$30 million of services over a six year term.
On , 2000, the Company effected a 1 for 1.407 forward stock split,
which has been retroactively reflected in the accompanying financial statements
and notes thereto.
F-21
<PAGE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8,925,000 SHARES
[LOGO]
JATO
COMMUNICATIONS
CORP.
COMMON STOCK
--------
PROSPECTUS
-------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 40,645
NASD filing fee............................................. 15,896
Nasdaq National Market listing application fee.............. 5,000
Blue Sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 500,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 200,000
Directors' and officers' insurance.......................... 350,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 68,459
----------
TOTAL....................................................... $1,700,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of the registrant's officers and directors under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her under the provisions of Section 145 of the Delaware General
Corporation Law.
The company's amended and restated bylaws that will become effective upon
the closing of this offering provide that the company will indemnify its
directors and executive officers to the fullest extent permitted by Delaware law
and may indemnify its other officers, employees and other agents to the fullest
extent permitted by Delaware law.
In addition, the company's restated certificate of incorporation that will
become effective upon the closing of this offering provides that, to the fullest
extent permitted by Delaware law, its directors will not be personally liable to
the company or its stockholders for monetary damages for any breach of fiduciary
duty as directors. This provision of the restated certificate of incorporation
does not eliminate the directors' duty of care. In appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
are available under Delaware law. This provision also does not affect the
directors' responsibilities under any other laws, such as the federal securities
laws and state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to the company and its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
II-1
<PAGE>
- any transaction from which a director derived an improper personal
benefit.
The company also intends to enter into indemnity agreements with its
directors and executive officers and to obtain directors' and officers'
liability insurance.
There is no pending litigation or proceeding involving any of the company's
directors or officers as to which indemnification is being sought. The company
is not aware of any pending or threatened litigation that may result in a claim
for indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The company has issued and sold the following securities since June 12, 1998
(date of inception).
On various dates between April 1999 and March 14, 2000, the Company
authorized the grant of stock options to employees, consultants, directors and
officers to purchase an aggregate of 6,942,009 shares of its Common Stock at
exercise prices ranging from $1.07 to $3.98 per share. The Company relied on the
exemption provided by Rule 701 of the Securities Act.
On July 13, 1998, the Company issued an aggregate of 3,939,601 shares of its
Common Stock at a price per share of $.0334 to its founders for cash and
assignment of certain proprietary rights to the Company in the aggregate amount
of $131,600.05. On October 13, 1998 the Company declared a 1:1 stock dividend
for each outstanding share of its Common Stock for the issuance of an aggregate
of 3,939,601 shares. The Company relied on the exemptions provided by
Section 4(2) and 4(6) of the Securities Act.
In August 1998, the Company issued an aggregate of 731,640 shares of its
Common Stock at a price of $.04975 per share to two of its employees for cash
proceeds in the aggregate amount of $36,400. The Company relied on the exemption
provided by Rule 701 of the Securities Act.
In October 1998, the Company issued 182,910 shares of its Common Stock at a
price per share of $.109343 to one of its employees for cash proceeds in the
amount of $20,000. The Company relied on the exemptions provided by Rule 701 of
the Securities Act.
In October 1998, the Company issued an aggregate of 1,751,985 shares of its
Series A Preferred Stock (which will convert into 2,465,042 shares of Common
Stock) to certain accredited investors at a purchase price of $0.75 per share
for cash proceeds in the amount of $1,313,988.75. The Company relied on the
exemptions provided by Rule 506 of Regulation D under the Securities Act.
In April and May 1999, the Company issued an aggregate of 13,615,322 shares
of its Series B Preferred Stock (which will convert into 19,156,758 shares of
Common Stock) to certain accredited investors at a purchase price of $1.50 per
share for cash proceeds in the amount of $20,422,983.00. The Company relied on
the exemptions provided by Rule 506 of Regulation D under the Securities Act.
In May 1999, the Company issued a warrant to purchase 28,140 shares of its
Common Stock at an exercise price of $2.13 per share to one accredited investor.
The investor exercised this warrant in full on February 29, 2000. The Company
relied on the exemption provided by Section 4(2) of the Securities Act.
On May 13, 1999 the Company authorized the grant of a stock option to
purchase 56,280 shares of its Common Stock to one of its directors at an
exercise price of $.1777 per share. On May 13, 1999 such optionee exercised his
option to purchase 14,070 shares for an aggregate consideration of $2,500. The
Company relied on the exemption provided by Rule 701 of the Securities Act.
On August 1, 1999, the Company issued a warrant to purchase 7,035 shares of
its Common Stock at an exercise price of $2.13 per share to one accredited
investor. The Company relied on the exemption provided by Section 4(2) of the
Securities Act.
II-2
<PAGE>
On August 31, 1999, the Company issued 703,500 shares of its Common Stock at
a price of $.53 per share to Gerald K. Dinsmore. The Company relied on the
exemption provision provided by Rule 701 of the Securities Act.
On September 16, 1999, the Company issued an aggregate of 3,938,714 shares
of its Series C Preferred Stock (which will convert into 5,541,770 shares of
Common Stock) to certain accredited investors at a purchase price of $7.00 per
share for cash proceeds in the amount of $24,570,996 and a note in the amount of
$3,000,002. The Company relied on the exemptions provided by Rule 506 of
Regulation D under the Securities Act.
In September 1999, the Company issued an aggregate of 28,140 and
10,991 shares of its Common Stock at a price of $2.13 per share and $1.07 per
share, respectively, to one employee and one consultant, respectively. The
Company relied on the exemption provision provided by Rule 701 of the Securities
Act.
On November 16, 1999, the Company issued an aggregate of 984,666 additional
shares of its Series C Preferred Stock (which will convert into 1,385,425 shares
of Common Stock) in connection with the price adjustment from $7.00 to $5.60 per
share. The Company relied on the exemptions provided by Rule 506 of
Regulation D under the Securities Act.
On December 22, 1999, the Company issued an aggregate of 8,928 shares of its
Series C Preferred Stock (which will convert into 12,561 shares of Common Stock)
to one accredited investor at a purchase price of $5.60 per share for cash
proceeds of $49,996.80. The Company relied on the exemption provision provided
by Rule 506 of Regulation D under the Securities Act.
On January 20, 2000, the Company issued an aggregate of 1,785,714 shares of
its Series D Preferred Stock (which will convert into 2,512,499 shares of Common
Stock) to one qualified institutional buyer at a purchase price of $5.60 per
share for cash proceeds of $9,999,998.40. The Company relied on the exemption
provided by Section 4(2) of the Securities Act.
On February 9, 2000, the Company issued an aggregate of 1,785,714 shares of
its Series D Preferred Stock (which will convert into 2,512,499 shares of Common
Stock) at a purchase price of $5.60 per share for cash proceeds of $9,999,998.40
and entered into an agreement to (a) sell $2.5 million of shares of its Common
Stock at the public offering price per share and (b) issue a warrant to purchase
$5.0 million of shares of its Common Stock at an exercise price per share of
120% of the public offering price per share, immediately after the closing of
this offering to one institutional accredited investor. The Company relied on
the exemption provided by Section 4(2) of the Securities Act.
On February 23, 2000, the Company issued an aggregate of 892,857 shares of
its Series D Preferred Stock (which will convert into 1,256,249 shares of Common
Stock) at a purchase price of $5.60 per share for cash proceeds of $5,000,000.
The Company relied on the exemption provided by Section 4(2) of the Securities
Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view for
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
3.1+ Restated Certificate of Incorporation of the Company,
currently in effect.
3.2+ Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.5+ Amended Bylaws of the Company, currently in effect.
3.6+ Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.6.
4.2+ Specimen stock certificate representing shares of Common
Stock of the Company.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1+ Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Brian E.
Gast.
10.2+ Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Leonard
Allsup.
10.3+ Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Bruce E.
Dines.
10.4+ Employment Agreement dated April 16, 1999 between the
registrant and Patrick Green.
10.5+ Employment Agreement dated April 16, 1999 between the
registrant and Rex A. Humston.
10.6+ Employment Agreement dated May 10, 1999 between the
registrant and Fred Thomas Danner, III.
10.7+ Employment Agreement dated August 16, 1999 between the
registrant and William D. Myers.
10.8+ Employment Agreement dated June 1, 1999 between the
registrant and Gerard A. Maglio.
10.9+ Amended Employment Agreement dated November 16, 1999 between
the registrant and Gerald K. Dinsmore.
10.10+ Warrant to purchase 20,000 shares of Common Stock of the
registrant issued to Daniels & Associates on June 18, 1999.
10.11+ Warrant to purchase 5,000 shares of Common Stock of the
registrant issued to Teah Bennett on August 1, 1999.
10.12+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Brian E. Gast.
10.13+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Bruce E. Dines.
10.14+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Leonard Allsup.
10.15+ Stock Purchase Agreement dated August 28, 1998 between the
registrant and Rex A. Humston.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.16+ Stock Purchase Agreement dated October 14, 1998 between the
registrant and Patrick M. Green.
10.17+ Stock Purchase Agreement dated August 31, 1999 between the
registrant and Gerald K. Dinsmore.
10.18+ Series A Preferred Stock Purchase Agreement entered into as
of October 23, 1998 among the registrant and the parties
named therein.
10.19+ Series B Preferred Stock Purchase Agreement entered into as
of April 16, 1999 among the registrant and the parties named
therein.
10.20+ Series C Preferred Stock Purchase Agreement entered into as
of September 16, 1999 among the registrant and the parties
named therein, as amended.
10.21+ Series D Preferred Stock Purchase Agreement entered into as
of January 20, 2000 between the registrant and Microsoft
Corporation.
10.22+ Series D Preferred Stock Purchase Agreement entered into as
of February 9, 2000 between the registrant and U.S.
Telesource, Inc.
10.23+ Stock Purchase Agreement entered into as of February 9, 2000
between the registrant and U.S. Telesource, Inc.
10.24+ 2000 Equity Incentive Plan.
10.25+ Form of Grant Notice and Stock Option Agreement.
10.26+ Office Lease Agreement dated January 1, 1999 between the
registrant and Denver-Stellar Associates Limited
Partnership, as amended.
10.27 Office Sublease Agreement dated February 21, 2000 between
the registrant and Homespace Services, Inc.
10.28+ Second Amended and Restated Investors' Rights Agreement
dated as of January 20, 2000 among the registrant and the
investors named therein.
10.29+ Second Amended and Restated Stockholders' Agreement dated as
of January 20, 2000 among the registrant and the
stockholders named therein.
10.30+ Form of Indemnity Agreements between the registrant and each
of its directors and executive officers.
10.31** Credit Agreement dated as of July 14, 1999 among the
registrant, Jato Operating Corp., the Lenders party thereto,
State Street Bank and Trust Company and Lucent Technologies
Inc.
10.32+ Purchase Agreement dated March 18, 1999 between the Company
and Hi Country Wire & Telephone, Ltd.
10.33**+ Agreement effective February 12, 1999 between the registrant
and Lucent Technologies Inc., as amended.
10.34**+ Master Services Agreement entered into as of February 9,
2000 between the registrant and Qwest Communications
Corporation.
10.35** Capacity Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.36** Services Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.37+ Employment Agreement dated November 29, 1999 between the
registrant and Terri L. Compton.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.38+ Employment Agreement dated November 29, 1999 between the
registrant and Thomas W. Hall.
10.39 Series D Preferred Stock Purchase Agreement entered into as
of February 24, 2000 between the registrant and Global
Crossing Bandwidth, Inc.
21.1+ Statement re: subsidiaries of the registrant.
23.1* Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, County of Denver, State of Colorado, on March 14, 2000.
<TABLE>
<S> <C> <C>
By: /s/ WILLIAM D. MYERS
-----------------------------------------
William D. Myers
SENIOR VICE PRESIDENT, FINANCE AND
STRATEGIC PLANNING
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
* Officer and Director
---------------------------------------- (PRINCIPAL EXECUTIVE March 14, 2000
Gerald K. Dinsmore OFFICER)
Senior Vice President,
Finance and Strategic
/s/ WILLIAM D. MYERS Planning, Chief Financial
---------------------------------------- Officer and Treasurer March 14, 2000
William D. Myers (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
*
---------------------------------------- Chairman of the Board March 14, 2000
Brian E. Gast
*
---------------------------------------- Vice President and Director March 14, 2000
Leonard Allsup
*
---------------------------------------- Director March 14, 2000
Eric A. Benhamou
*
---------------------------------------- Director March 14, 2000
Todd A. Brooks
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
---------------------------------------- Director March 14, 2000
James J. Collis
*
---------------------------------------- Director March 14, 2000
Donald T. Lynch
*
---------------------------------------- Director March 14, 2000
Gregg A. Mockenhaupt
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ WILLIAM D. MYERS
--------------------------------------
William D. Myers
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
3.1+ Restated Certificate of Incorporation of the Company,
currently in effect.
3.2+ Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.5+ Amended Bylaws of the Company, currently in effect.
3.6+ Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.6.
4.2+ Specimen stock certificate representing shares of Common
Stock of the Company.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1+ Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Brian E.
Gast.
10.2+ Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Leonard
Allsup.
10.3+ Founders Employment Transition and Separation Agreement
dated February 10, 2000 between the registrant and Bruce E.
Dines.
10.4+ Employment Agreement dated April 16, 1999 between the
registrant and Patrick Green.
10.5+ Employment Agreement dated April 16, 1999 between the
registrant and Rex A. Humston.
10.6+ Employment Agreement dated May 10, 1999 between the
registrant and Fred Thomas Danner, III.
10.7+ Employment Agreement dated August 16, 1999 between the
registrant and William D. Myers.
10.8+ Employment Agreement dated June 1, 1999 between the
registrant and Gerard A. Maglio.
10.9+ Amended Employment Agreement dated November 16, 1999 between
the registrant and Gerald K. Dinsmore.
10.10+ Warrant to purchase 20,000 shares of Common Stock of the
registrant issued to Daniels & Associates on June 18, 1999.
10.11+ Warrant to purchase 5,000 shares of Common Stock of the
registrant issued to Teah Bennett on August 1, 1999.
10.12+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Brian E. Gast.
10.13+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Bruce E. Dines.
10.14+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Leonard Allsup.
10.15+ Stock Purchase Agreement dated August 28, 1998 between the
registrant and Rex A. Humston.
10.16+ Stock Purchase Agreement dated October 14, 1998 between the
registrant and Patrick M. Green.
10.17+ Stock Purchase Agreement dated August 31, 1999 between the
registrant and Gerald K. Dinsmore.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.18+ Series A Preferred Stock Purchase Agreement entered into as
of October 23, 1998 among the registrant and the parties
named therein.
10.19+ Series B Preferred Stock Purchase Agreement entered into as
of April 16, 1999 among the registrant and the parties named
therein.
10.20+ Series C Preferred Stock Purchase Agreement entered into as
of September 16, 1999 among the registrant and the parties
named therein, as amended.
10.21+ Series D Preferred Stock Purchase Agreement entered into as
of January 20, 2000 between the registrant and Microsoft
Corporation.
10.22+ Series D Preferred Stock Purchase Agreement entered into as
of February 9, 2000 between the registrant and U.S.
Telesource, Inc.
10.23+ Stock Purchase Agreement entered into as of February 9, 2000
between the registrant and U.S. Telesource, Inc.
10.24+ 2000 Equity Incentive Plan.
10.25+ Form of Grant Notice and Stock Option Agreement.
10.26+ Office Lease Agreement dated January 1, 1999 between the
registrant and Denver-Stellar Associates Limited
Partnership, as amended.
10.27 Office Sublease Agreement dated February 21, 2000 between
the registrant and Homespace Services, Inc.
10.28+ Second Amended and Restated Investors' Rights Agreement
dated as of January 20, 2000 among the registrant and the
investors named therein.
10.29+ Second Amended and Restated Stockholders' Agreement dated as
of January 20, 2000 among the registrant and the
stockholders named therein.
10.30+ Form of Indemnity Agreements between the registrant and each
of its directors and executive officers.
10.31** Credit Agreement dated as of July 14, 1999 among the
registrant, Jato Operating Corp., the Lenders party thereto,
State Street Bank and Trust Company and Lucent Technologies
Inc.
10.32+ Purchase Agreement dated March 18, 1999 between the Company
and Hi Country Wire & Telephone, Ltd.
10.33**+ Agreement effective February 12, 1999 between the registrant
and Lucent Technologies Inc., as amended.
10.34**+ Master Services Agreement entered into as of February 9,
2000 between the registrant and Qwest Communications
Corporation.
10.35** Capacity Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.36** Services Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.37+ Employment Agreement dated November 29, 1999 between the
registrant and Terri L. Compton.
10.38+ Employment Agreement dated November 29, 1999 between the
registrant and Thomas W. Hall.
10.39 Series D Preferred Stock Purchase Agreement entered into as
of February 24, 2000 between the registrant and Global
Crossing Bandwidth, Inc.
21.1+ Statement re: subsidiaries of the registrant.
23.1* Consent of Cooley Godward LLP (included in Exhibit 5.1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
+ Previously filed.
<PAGE>
SUBLEASE
1. PARTIES. This Sublease, dated, for reference purposes only, February
21, 2000, is made by and between HOMESPACE SERVICES, INC., a Florida
corporation formerly known as Amerinet Financial Systems, Inc. ("SUBLANDLORD")
and JATO COMMUNICATIONS, INC., a Delaware corporation ("SUBTENANT").
2. PREMISES. Sublandlord hereby subleases to Subtenant and Subtenant
hereby subleases from Sublandlord for the term, at the rental, and upon all of
the conditions set forth herein, that certain real property, including all
improvements therein, commonly known by the street address of 6200 South
Syracuse Way, Suite 400, Englewood, Colorado 80111, and generally described as
approximately 21,376 square feet located on the fourth floor of the building
located at 6200 South Syracuse Way, Englewood, Colorado, commonly referred to as
Carrara Place ("PREMISES"), as shown on the plans attached as Exhibit A to the
Master Lease (as defined in Section 3.1) and incorporated by this reference
herein.
3. MASTER LEASE.
3.1 DESCRIPTION OF MASTER LEASE. Sublandlord is the lessee of the
Premises by virtue of a lease, a copy of which and all amendments thereto is
attached hereto as Exhibit A and incorporated by this reference herein (the
"MASTER LEASE"), wherein PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware corporation, the successor in interest to Gateway Colorado Properties,
Inc., a California corporation, is the Landlord ("MASTER LANDLORD").
3.2 SUBORDINATION OF SUBLEASE. This Sublease is and shall be at all
times subject and subordinate to the Master Lease.
3.3 INCORPORATION OF MASTER LEASE. The terms, conditions and
respective obligations of Sublandlord and Subtenant to each other under this
Sublease shall be the terms and conditions of the Master Lease except for those
provisions of the
Page 1 of 12
<PAGE>
Master Lease which are directly contradicted by this Sublease in which event the
terms of this Sublease document shall control over the Master Lease. Therefore,
for the purposes of this Sublease, wherever in the Master Lease the word
"LANDLORD" is used it shall be deemed to mean the Sublandlord herein and
wherever in the Master Lease the word "TENANT" is used it shall be deemed to
mean the Subtenant herein. Subtenant expressly acknowledges and agrees that,
notwithstanding anything to the contrary contained herein, Subtenant shall have
no rights under and the following provisions of the Master Lease shall not apply
to this Sublease: Section 30. OPTION TO RENEW and Section 31. RIGHT TO OFFER.
Further, Subtenant shall have no rights or obligations under Section 8.b.(2) of
the Master Lease to remove alterations or additions to the Premises made by
Sublandlord at the end of the term if such removal is requested by Master
Landlord; provided, however, that Subtenant shall have the obligation in
accordance with the provisions of Section 8.b.(2) to remove at the end of the
term any alterations or additions made to the Premises by Subtenant if requested
by Master Landlord. Sublandlord shall provide a copy of any such request by
Master Landlord to Subtenant to remove alterations or additions to the Premises
within five (5) days of receipt of such request. Subtenant shall cooperate with
Sublandlord with respect to any removal for which Sublandlord is responsible,
including, if necessary, vacating the Premises prior to the end of the term so
that Sublandlord can timely complete its removal obligation by the end of the
term. Further, if Subtenant must vacate the Premises in order to comply with
Master Landlord's request, Sublandlord shall provide at least thirty (30) days
prior written notice to Subtenant of the need for Subtenant to vacate the
Premises. If Subtenant vacates the Premises prior to the end of the term at the
request of Sublandlord, the Base Rent, the Parking Cost and the Excess Operating
Expenses (all as defined in Article 5 below) for the final month shall be
prorated based on the number of days of actual occupancy. Subtenant shall
indemnify Sublandlord against any loss or liability resulting from any delay by
Subtenant in surrendering the Premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay.
Page 2 of 12
<PAGE>
3.4 SUBTENANT'S ASSUMED OBLIGATIONS. During the term of this
Sublease and for all periods subsequent for obligations which have arisen prior
to the termination of this Sublease, Subtenant does hereby expressly assume and
agree to perform and comply with, for the benefit of Sublandlord and Master
Landlord, each and every obligation of Sublandlord under the Master Lease;
provided, however, that Subtenant's obligations with respect to payment of Base
Rent and Excess Operating Expenses (as defined in Section 5.3 and 5.4 below,
respectively) shall be as described herein and not as described in the Master
Lease except to the extent specifically referenced herein. The obligations that
Subtenant has assumed hereunder are hereinafter referred to as the "SUBTENANT'S
ASSUMED OBLIGATIONS". The obligations that Subtenant has not assumed hereunder
are hereinafter referred to as the "SUBLANDLORD'S REMAINING OBLIGATIONS".
Subtenant shall hold Sublandlord free and harmless from all liability,
judgments, costs, damages, claims or demands, including reasonable attorneys'
fees, arising out of Subtenant's failure to comply with or perform Subtenant's
Assumed Obligations.
3.5 SUBLANDLORD'S PERFORMANCE CONDITIONED ON MASTER LANDLORD'S
PERFORMANCE. Subtenant recognizes that Sublandlord is not in a position to
render any of the services or to perform any of the obligations required of
Master Landlord by the terms of the Master Lease. Therefore, despite anything
to the contrary in this Sublease, Subtenant agrees that performance by
Sublandlord of its obligations under this Sublease is conditioned on performance
by the Master Landlord of its corresponding obligations under the Master Lease,
and Sublandlord will not be liable to Subtenant for any default of the Master
Landlord under the Master Lease. Sublandlord shall use its best efforts to
obtain performance by Master Landlord and will pursue any remedies available in
the Master Lease in the event of a default by Master Landlord.
3.6 LIMITATIONS ON SUBLANDLORD'S LIABILITY. Subtenant will not have
any claim against Sublandlord based on the Master Landlord's failure or refusal
to comply with any of the provisions of the Master Lease unless that failure or
refusal is a result of Sublandlord's act or failure to act. Sublandlord shall
promptly pursue any
Page 3 of 12
<PAGE>
remedies available under the Master Lease to ensure Subtenant's quiet enjoyment.
Despite the Master Landlord's failure or refusal to comply with any of those
provisions of the Master Lease, this Sublease will remain in full force and
effect and Subtenant will pay the base rent and additional rent and all other
charges provided for in this Sublease without any abatement, deduction or
setoff. Except as expressly provided in this Sublease, Subtenant agrees to be
subject to, and bound by, all of the covenants, agreements, terms, provisions,
and conditions of the Master Lease, as though Subtenant was the Tenant under the
Master Lease.
4. TERM. The term of this Sublease shall commence at 12:01 a.m. on
February 28, 2000 and end at 12:00 midnight on May 11, 2002 unless sooner
terminated pursuant to any provision hereof.
5. RENT.
5.1 BASE RENT. Subtenant shall pay to Sublandlord as Base Rent equal
monthly payments of $35,181.33 in advance, on the first day of each month of be
term hereof. Subtenant shall pay Sublandlord upon the execution hereof
$35,181.33 as Base Rent for March 2000. Base Rent for any period during the
term hereof which is for less than one month shall be a pro rata portion of the
monthly installment. Also due on execution of the Sublease will be Base Rent
and Parking Costs for February 28 and 29 for a total of $2,440.52. Sublandlord
shall continue to pay rent to Master Landlord in accordance with the terms of
the Master Lease.
5.2 PARKING COST. In addition to the Base Rent described in Section
4.1, Subtenant acknowledges and agrees that Subtenant shall pay to Sublandlord
the amounts required for the parking spaces as described in Section 22 of the
Master Lease (the "PARKING COST").
5.3 EXCESS OPERATING EXPENSE. Subtenant shall also pay to
Sublandlord, in addition to the Base Rent and the Parking Cost, the amount by
which the "OPERATING EXPENSES" as defined and calculated according to Section 4
of the Master Lease for each year, or portion thereof, during the term of this
Sublease
Page 4 of 12
<PAGE>
exceeds the actual Operating Expenses for the Premises for calendar year 2000
(the "2000 OPERATING EXPENSES"). For calendar years 2001 and 2002, Sublandlord
shall notify Subtenant of the Master Landlord's estimate of the Sublandlord's
pro rata share of the Operating Expenses for such calendar years, and to the
extent that the estimated Operating Expenses allocable to Sublandlord for the
Premises is greater than the 2000 Operating Expenses for the Premises (the
"EXCESS OPERATING EXPENSES"), Subtenant shall pay to Sublandlord monthly in
advance at the rate of 1/12 of the Excess Operating Expenses on the same date
and at the same place as the Base Rent is payable, with an adjustment to be made
between the parties at a later date to the extent that actual Excess Operating
Expenses are greater or less than the Excess Operating Expenses calculated with
Landlord's estimate of the Operating Expenses. If, at the beginning of calendar
year 2001, 2000 Operating Expenses have not been finally determined, Subtenant
shall initially pay to Sublandlord in advance at the rate of 1/12 per month the
amount by which the estimated Operating Expenses for calendar year 2001 exceed
the estimated operating expenses for calendar year 2000 (the "Estimated 2000
Operating Expenses"). After Sublandlord has received the notice from Master
Landlord setting forth the actual 2000 Operating Expenses, Sublandlord shall
send a notice to Subtenant setting forth the determination of the actual amount
of the 2000 Operating Expenses and a calculation of any overpayment or
underpayment by Tenant of Excess Operating Expenses. If the 2000 Operating
Expenses are greater than the Estimated 2000 Operating Expenses so that
Subtenant has overpaid Excess Operating Expenses, Sublandlord shall credit any
excess amounts paid by Subtenant against the monthly Base Rent next payable by
Subtenant to Sublandlord hereunder. If the 2000 Operating Expenses are less than
the Estimated 2000 Operating Expenses so that Subtenant has underpaid the Excess
Operating Expenses, Subtenant shall pay the amount of the underpayment to
Sublandlord within ten (10) days of Subtenant's receipt of the notice from
Sublandlord setting forth the determination of the actual amount of 2000
Operating Expenses and the calculation of the amount of the underpayment. After
determination of the 2000 Operating Expenses, and the adjustment described
hereinafter, for the balance of the calendar year 2001, Subtenant shall pay to
Landlord in advance at the
Page 5 of 12
<PAGE>
rate of 1/12 per month the amount by which the estimated Operating Expenses for
2001 exceed the 2000 Operating Expenses. Thereafter, if Sublandlord receives a
notice of adjustment from Master Landlord that indicates that the actual
Operating Expenses for a calendar year during the term are greater or less than
the estimated Operating Expenses so that Subtenant has underpaid or overpaid
Excess Operating Expenses, Sublandlord shall notify Subtenant of the amount of
the actual Operating Expenses, including a copy of Master Landlord's notice and
a calculation of any underpayment or overpayment by Subtenant of the Excess
Operating Expenses. If the actual Excess Operating Expenses are greater than
previously paid by Subtenant, Subtenant shall pay such amount to Sublandlord
within ten (10) days of Subtenant's receipt of the notice from Sublandlord. If
the actual Excess Operating Expenses are less than previously paid by Subtenant,
Sublandlord shall credit any excess amounts paid by Subtenant against the
monthly Base Rent next payable by Subtenant to Sublandlord hereunder or, if the
adjustment occurs after the last payment by Subtenant to Sublandlord of Base
Rent, Sublandlord shall pay to Subtenant the excess amounts paid by Subtenant
subject to offset for any amounts that may be owed by Subtenant to Sublandlord.
5.4 RENT DEFINED. All monetary obligations of Subtenant to
Sublandlord under the terms of this Sublease (except for the Security Deposit)
including, without limitation, the Parking Costs and the Excess Operating
Expenses, are deemed to be rent ("RENT"). Rent shall be payable in lawful money
of the United States to Sublandlord at the address stated herein or to such
other persons or at such other places as Sublandlord may designate in writing.
5.5 INDEMNIFICATION BY SUBLANDLORD. In the event of a default by
Sublandlord as tenant under the Master Lease which results in Subtenant being
required to pay rent directly to Master Landlord in order to be able to continue
to occupy the Premises, Sublandlord shall indemnify and hold harmless Subtenant
from the difference between the amount of the Base Rent payable by Sublandlord
to Master Lessor under the Master Lease and the Base Rent payable by Subtenant
to
Page 6 of 12
<PAGE>
Sublandlord. Sublandlord shall further indemnify Subtenant in such event
with respect to Operating Expenses up to the amount of the 2000 Operating
Expenses.
6. SECURITY DEPOSIT. Subtenant shall deposit with Sublandlord upon
execution hereof $35,000.00 as security for Subtenant's obligations hereunder.
If Subtenant fails to pay Rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Sublease or the Master Lease,
Sublandlord may use, apply or retain all or any portion of said deposit for the
payment of any Rent or other charge in default or for the payment of any other
sum to which Sublandlord may become obligated by reason of Subtenant's default,
or to compensate Sublandlord for any loss or damage which Sublandlord may suffer
thereby. If Sublandlord so uses or applies all or any portion of said deposit,
Subtenant shall within ten (10) days after written demand therefor forward to
Sublandlord an amount sufficient to restore said Deposit to the full amount
provided for herein and Subtenant's failure to do so shall be a material breach
of this Sublease. Sublandlord shall not be required to keep said Deposit
separate from its general accounts. If Subtenant performs all of Subtenant's
obligations hereunder, said Deposit, or so much thereof as has not therefor been
applied by Sublandlord, shall be returned, without payment of interest, to
Subtenant at the expiration of the term hereof after Subtenant has vacated the
Premises. No trust relationship is created herein between Sublandlord and
Subtenant with respect to said Security Deposit.
7. USE.
7.1 AGREED USE. The Premises shall be used and occupied only for
general or executive offices, or both and for no other purpose.
7.2 ACCEPTANCE OF PREMISES AND TENANT. Subtenant acknowledges that:
(a) It has been advised to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC and
fire
Page 7 of 12
<PAGE>
sprinkler systems, security, environmental aspects, and compliance with
applicable laws), and their suitability for Subtenant's intended use.
(b) Subtenant has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to its occupancy of the Premises.
(c) Neither Sublandlord, Sublandlord's agents, nor any broker
has made any oral or written representations or warranties with respect to said
matters other than as set forth in this Sublease.
(d) Subtenant accepts the Premises "AS IS" with all faults.
8. CONSENT OF MASTER LANDLORD REQUIRED UNDER MASTER LEASE. Section 14 of
the Master Lease requires that Sublandlord obtain the consent of Master Landlord
to any subletting by Sublandlord. Therefore, this Sublease shall not be
effective unless Master Landlord consents to this Subletting. Further, this
Sublease shall only be effective if Master Landlord does not terminate the
Master Lease with respect to the Subleased Premises and recapture the Subleased
Premises within fourteen (14) days after Sublandlord provides Master Landlord
with a written notice of Sublandlord's intent to sublease the Subleased Premises
containing the information required by Section 4.a(2) and (3) of the Master
Lease.
9. MISCELLANEOUS
9.1 CERTIFICATES. Each party to this Sublease will, from time to
time as requested by the other party, on not less than ten (10) days prior
written notice, execute, acknowledge, and deliver to the other party a statement
in writing certifying that this Sublease is unmodified and in full force and
effect (or if there have been modifications that this Sublease is in full force
and effect as modified and stating the modifications). That statement will
certify the dates to which base rent, additional rent, and any other charges
have been paid. That statement will also state whether, to the knowledge of the
person signing the certificate, the other party is in default beyond any
applicable grace period provided in this Sublease in the performance of any of
its obligations under this Sublease. If the other party is in default beyond
any
Page 8 of 12
<PAGE>
applicable grace period, the statement will specify each default of which
the signer then has knowledge. It is intended that this statement may be relied
on by others with whom the party requesting that certificate may be dealing.
9.2 ASSIGNMENT OR SUBLEASING. Subject to the rights of the Master
Landlord and the restrictions contained in the Master Lease in connection with a
transfer, Subtenant is not entitled to assign this Sublease or to sublet all or
any portion of the Subleased Premises without the prior written consent of
Sublandlord which consent may not be unreasonably withheld by Sublandlord.
9.3 SEVERABILITY. If any provision of this Sublease or the
application of any provision of this Sublease to any person or circumstance is,
to any extent, held to be invalid or unenforceable, the remainder of this
Sublease or the application of that provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, will not be
affected, and each provision of this Sublease will be valid and be enforced to
the fullest extent permitted by law.
9.4 ENTIRE AGREEMENT. This Sublease constitutes the final, complete
and exclusive statement between the parties to this Sublease pertaining to the
Subleased Premises, supersedes all prior and contemporaneous understandings or
agreements of the parties, and is binding on and inures to the benefit of their
respective heirs, representatives, successors, and assigns. No party has been
induced to enter into this Sublease by, nor is any party relying on, any
representation or warranty outside those expressly set forth in this Sublease.
Any agreement made after the date of this Sublease is ineffective to modify,
waive, release, terminate, or effect an abandonment of this Sublease, in whole
or in part, unless that agreement is in writing, is signed by the parties to
this Sublease, and specifically states that the agreement modifies this
Sublease.
Page 9 of 12
<PAGE>
9.5 CAPTIONS. Captions to the sections in this Sublease are included
for convenience only and do not modify any of the terms of this Sublease.
9.6 FURTHER ASSURANCES. Each party to this Sublease will at its own
cost and expense execute and deliver such further documents and instruments and
will take such other actions as may be reasonably required or appropriate to
evidence or carry out the intent and purposes of this Sublease.
9.7 GOVERNING LAW. This Sublease will be governed by and in all
respects construed in accordance with the laws of the State of Colorado.
9.8 CAPITALIZED TERMS. All terms spelled with initial capital
letters in this Sublease that are not expressly defined in this Sublease will
have the respective meanings given such terms in the Master Lease.
9.9 ATTORNEYS' FEES AND COSTS. Subtenant shall reimburse
Sublandlord, within ten (10) days of demand therefor, for all of Sublandlord's
costs, including attorneys' fees, expended in connection with collecting any
monies due hereunder and not paid when due, and in connection with any other
default of Subtenant hereunder. In the event of litigation hereunder, the
substantially prevailing party shall recover from the other party the
substantially prevailing party's costs and reasonable attorneys' fees, and such
costs and attorneys' fees shall be made a part of the judgment in such action.
9.10 NOTICES. No notice, request, demand, instruction, or other
document to be given hereunder to any Party shall be effective for any purpose
unless personally delivered, delivered by commercial overnight delivery service,
or sent by certified or registered mail, return receipt requested, to the
appropriate address set forth below, or transmitted by telecopier to the number
set forth below. For all purposes herein, notices shall be provided as follows:
Page 10 of 12
<PAGE>
If to the Sublandlord: Homespace Services, Inc.
Attn: John Wright
251 South Lake Avenue, Suite 1000
Pasadena, CA 91101
Telecopier: (626) 229-2859
With copy to: Henry P. Pramov, Jr., Esq.
Rodi, Pollock, Pettker, Galbraith & Cahill
A Law Corporation
444 South Flower Street, Suite 1700
Los Angeles, CA 90071-2901
Telecopier. (213) 895-4921
If to the Subtenant: Jato Communications, Inc.
Attn: Dan Alonzi
1099 18th Street, Suite 2200
Denver, CO 80202
Telecopier: ___________________________
With copy to: _______________________________________
_______________________________________
_______________________________________
Telecopier: ___________________________
Notices that are mailed shall be deemed to have been given on the second day
following deposit of same in any United States Post Office mailbox in the state
to which the notice is addressed or on the third day following deposit in any
such post office box other than in the state to which the notice is addressed,
postage prepaid, addressed as set forth above. Notices sent via commercial
overnight delivery service shall be deemed to have been given the next business
day after deposit with the commercial delivery service. Notices that are
transmitted via telecopier shall be deemed to have been given the business day
transmitted, if transmitted before 3:00 p.m. recipient's time, and on the next
business day, if transmitted after 3:00 p.m. recipient's time, as evidenced by a
telecopier confirmation. The addresses and telecopier numbers for the purposes
of this paragraph may be changed by giving written notice of such change in the
manner herein provided for giving notice.
9.11 COPY OF NOTICES FROM MASTER LANDLORD. Sublandlord shall provide
to Subtenant a copy of any written notice provided by Master Landlord to
Page 11 of 12
<PAGE>
Sublandlord with respect to the Master Lease. Except as otherwise may be
provided herein, Sublandlord shall provide such copy of any such notice to
Subtenant within ten (10) days of receipt thereof by Sublandlord.
9.12 SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
contained in this Sublease, the covenants and agreements contained in this
Sublease shall bind and inure to the benefit of Sublandlord and Subtenant, their
respective successors and assigns, and all persons claiming by, through or under
them.
9.13 REAL ESTATE COMMISSIONS. Sublandlord and Subtenant represent
and warrant to each other that neither party has used the services of any
real estate broker, salesperson or finder in connection with subleasing of
the Subleased Premises, other than the services of The Staubach Company
("BROKERS"). Sublandlord shall pay all costs, fees and commissions owing to
Brokers in accordance with Sublandlord's written agreement with Brokers.
"SUBLANDLORD" "SUBTENANT"
HOMESPACE SERVICES, INC., a JATO COMMUNICATIONS, INC.,
Florida corporation formerly known a ______________ corporation
as Amerinet Financial Systems, Inc.
By: /s/ John R. Wright, Jr. By: /s/ William D. Myers
-------------------------------- --------------------------------
Name: John R. Wright, Jr. Name: William D. Myers
------------------------------ ------------------------------
Its: S.V.P. Finance Its: C.F.O.
------------------------------- -------------------------------
By: By:
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Its: Its:
------------------------------- -------------------------------
Page 12 of 12
<PAGE>
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF
JULY 14, 1999
AMONG
JATO OPERATING CORP.,
JATO COMMUNICATIONS CORP.,
THE LENDERS PARTY HERETO,
STATE STREET BANK AND
TRUST COMPANY,
AS COLLATERAL AGENT,
AND
LUCENT TECHNOLOGIES INC.,
AS ADMINISTRATIVE AGENT
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.02. Classification of Loans and Borrowings. . . . . . . . . . . . 21
Section 1.03. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1.04. Accounting Terms; GAAP. . . . . . . . . . . . . . . . . . . . 22
ARTICLE II The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.02. Loans and Borrowings. . . . . . . . . . . . . . . . . . . . . 22
Section 2.03. Requests for Borrowings . . . . . . . . . . . . . . . . . . . 23
Section 2.04. Funding of Borrowings . . . . . . . . . . . . . . . . . . . . 24
Section 2.05. Interest Elections. . . . . . . . . . . . . . . . . . . . . . 24
Section 2.06. Termination and Reduction of Commitments. . . . . . . . . . . 26
Section 2.07. Repayment of Loans; Evidence of Debt. . . . . . . . . . . . . 26
Section 2.08. Amortization of Loans . . . . . . . . . . . . . . . . . . . . 27
Section 2.09. Prepayment of Loans . . . . . . . . . . . . . . . . . . . . . 28
Section 2.10. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.11. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.12. Alternate Rate of Interest. . . . . . . . . . . . . . . . . . 30
Section 2.13. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.14. Break Funding Payments; Prepayment Fees . . . . . . . . . . . 31
Section 2.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.17. Mitigation Obligations; Replacement of Lenders. . . . . . . . 35
ARTICLE III Representations and Warranties. . . . . . . . . . . . . . . . . . . 36
Section 3.01. Organization; Powers. . . . . . . . . . . . . . . . . . . . . 36
Section 3.02. Authorization; Enforceability . . . . . . . . . . . . . . . . 36
Section 3.03. Governmental Approvals; No Conflicts. . . . . . . . . . . . . 36
Section 3.04. Financial Condition; No Material Adverse Change . . . . . . . 36
Section 3.05. Properties and Licenses . . . . . . . . . . . . . . . . . . . 37
Section 3.06. Litigation and Environmental Matters. . . . . . . . . . . . . 37
Section 3.07. Compliance with Laws and Agreements . . . . . . . . . . . . . 38
Section 3.08. Investment and Holding Company Status . . . . . . . . . . . . 38
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Section 3.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.11. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.12. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.13. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.14. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.15. Supply Agreement. . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.16. Security Documents. . . . . . . . . . . . . . . . . . . . . . 39
Section 3.17. Year 2000 Readiness . . . . . . . . . . . . . . . . . . . . . 39
Section 3.18. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IV Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.01. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.02. Each Borrowing. . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE V Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . 43
Section 5.01. Financial Statements and Other Information. . . . . . . . . . 44
Section 5.02. Notices of Material Events. . . . . . . . . . . . . . . . . . 45
Section 5.03. Information Regarding Collateral. . . . . . . . . . . . . . . 46
Section 5.04. Existence; Conduct of Business. . . . . . . . . . . . . . . . 47
Section 5.05. Payment of Obligations. . . . . . . . . . . . . . . . . . . . 47
Section 5.06. Maintenance of Properties . . . . . . . . . . . . . . . . . . 47
Section 5.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.08. Books and Records; Inspection Rights. . . . . . . . . . . . . 48
Section 5.09. Compliance with Laws and Agreements . . . . . . . . . . . . . 48
Section 5.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.11. Further Assurances. . . . . . . . . . . . . . . . . . . . . . 49
Section 5.12. Casualty and Condemnation . . . . . . . . . . . . . . . . . . 49
Section 5.13. Interest Rate Protection. . . . . . . . . . . . . . . . . . . 49
Section 5.14. Execution of Pledge Agreement (Borrower); Subsidiary
Guarantors; Additional Security Documents . . . . . . . . . . 50
ARTICLE VI Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.01. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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Section 6.03. Fundamental Changes . . . . . . . . . . . . . . . . . . . . . 53
Section 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions; Asset Sales. . . . . . . . . . . . . . . . . . .53
Section 6.05. Hedging Agreements. . . . . . . . . . . . . . . . . . . . . . 56
Section 6.06. Restricted Payments . . . . . . . . . . . . . . . . . . . . . 56
Section 6.07. Transactions with Affiliates. . . . . . . . . . . . . . . . . 57
Section 6.08. Restrictive Agreements. . . . . . . . . . . . . . . . . . . . 57
Section 6.09. Repayment of Indebtedness . . . . . . . . . . . . . . . . . . 57
Section 6.10. Limitation on Sale-Leaseback Transactions . . . . . . . . . . 57
Section 6.11. Senior Indebtedness to Total Capitalization . . . . . . . . . 57
Section 6.12. Consolidated Indebtedness to Total Capitalization . . . . . . 58
Section 6.13. Consolidated Indebtedness to Annualized EBITDA. . . . . . . . 58
Section 6.14. Senior Indebtedness to Annualized EBITDA. . . . . . . . . . . 59
Section 6.15. Annualized EBITDA to Consolidated Interest Expense. . . . . . 59
Section 6.16. Annualized EBITDA to Consolidated Debt Service. . . . . . . . 60
Section 6.17. Consolidated Gross Revenues . . . . . . . . . . . . . . . . . 60
Section 6.18. Minimum Subscribers . . . . . . . . . . . . . . . . . . . . . 61
Section 6.19. Consolidated Parent Indebtedness to Total Parent
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.20. Consolidated Parent Indebtedness to Annualized Parent
EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.21. Use of Collateral . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE VII Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VIII The Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE IX Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 9.02. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . 68
Section 9.03. Expenses; Indemnity; Damage Waiver. . . . . . . . . . . . . . 69
Section 9.04. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 70
Section 9.05. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 9.06. Counterparts; Integration; Effectiveness. . . . . . . . . . . 73
Section 9.07. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 9.08. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 73
Section 9.09. Governing Law; Jurisdiction; Consent to Service of
Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
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Section 9.10. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . 74
Section 9.11. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 9.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 75
Section 9.13. Interest Rate Limitation. . . . . . . . . . . . . . . . . . . 75
</TABLE>
EXHIBITS:
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Guarantee Agreement
Exhibit C Form of Indemnity and Contribution Agreement
Exhibit D Form of Security Agreement (Borrower)
Exhibit E Form of Pledge Agreement (Borrower)
Exhibit F Form of Pledge Agreement (Parent)
Exhibit G Form of Landlord Letter
Exhibit H Form of Security Agreement (Parent)
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<PAGE>
CREDIT AGREEMENT, dated as of July 14, 1999, among JATO OPERATING CORP.,
a Delaware corporation, JATO COMMUNICATIONS CORP., a Delaware corporation, the
LENDERS party hereto, STATE STREET BANK AND TRUST COMPANY, as Collateral Agent,
and LUCENT TECHNOLOGIES INC., as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINED TERMS. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ADDITIONAL ASSETS" means any capital assets used or useful in the
business of the Borrower and the Subsidiaries.
"ADJUSTED LIBO RATE" means, with respect to any LIBOR Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"ADMINISTRATIVE AGREEMENT" means the Financing and Management
Services Agreement, dated as of July 14, 1999, by and between the Parent and the
Borrower, as in effect on the date hereof.
"ADMINISTRATIVE AGENT" means Lucent, in its capacity as
administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"AGENTS" means the Administrative Agent and the Collateral Agent.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal
to the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day [ * ]. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
"ANNUALIZED EBITDA" means, as of any date of determination,
Consolidated EBITDA for the period of two fiscal quarters then most recently
ended times two.
"ANNUALIZED PARENT EBITDA" means, as of any date of determination,
Consolidated Parent EBITDA for the period of two fiscal quarters then most
recently ended times two.
"APPLICABLE RATE" means, for any day, with respect to any Loan,
the applicable rate per annum set forth below under the caption "ABR Spread" or
"Eurodollar Spread", as the case may be:
<TABLE>
<CAPTION>
ABR Spread Eurodollar Spread
--------------- ---------------- ---------------------
<S> <C> <C>
Tranche 1 Loans 3.5% 4.5%
Tranche 2 Loans 3.5% 4.5%
</TABLE>
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of the Borrower and
Administrative Agent if required by Section 9.04), and accepted by the
Administrative Agent, in the form of Exhibit A or any other form approved by the
Administrative Agent.
"AVAILABILITY PERIOD" means, in respect of the Tranche 1 Loans,
the Tranche 1 Availability Period and, in respect of the Tranche 2 Loans,
Tranche 2 Availability Period.
"BOARD" means the Board of Governors of the Federal Reserve System
of the United States of America.
"BORROWER" means Jato Operating Corp., a Delaware corporation.
"BORROWER-RELATED COLLATERAL" has the meaning set forth in the
Security Agreement (Parent).
"BORROWING" means a Loan or group of Loans of the same Class and
Type, made, converted or continued on the same date and, in the case of LIBOR
Loans, as to which a single Interest Period is in effect.
"BORROWING REQUEST" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; PROVIDED that, when used in connection with a LIBOR
Loan, the term "BUSINESS DAY" shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.
"BUSINESS PLAN" means, for any fiscal year, the business plan of
the Borrower and the Subsidiaries for such fiscal year.
2
<PAGE>
"CAPITAL EXPENDITURES" means, for any period, the additions to
property, plant and equipment and other capital expenditures of the Borrower and
the Subsidiaries that are (or would be) set forth in a consolidated statement of
cash flows of the Borrower for such period prepared in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"CHANGE IN CONTROL" means (a) prior to the issuance and sale of
capital stock of the Parent pursuant to an initial public offering registered
under the Securities Act (i) the acquisition of beneficial ownership,
directly or indirectly, by any Person or group (within the meaning of the
Securities Exchange Act), other than the Founders or the Series B Investors,
of shares representing more than [ * ] of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Parent;
(ii) occupation of a majority of the seats (other than vacant seats) on the
Board of Directors of the Parent by persons other than one person designated
by CEA Capital Partners USA, L.P., one person designated by Crest
Communications Partners, L.P., the chief executive officer of the Parent, one
person designated by the chief executive officer of the Parent and one person
designated by such other four persons; (iii) a majority of the persons
appointed by the Board of Directors of the Parent as Senior Officers as of
the date hereof shall cease to be Senior Officers; (iv) beneficial ownership,
directly or indirectly, by the Founders of less than [ * ] of the aggregate
ordinary voting power represented by the issued and outstanding capital stock
of the Parent; and (v) the failure of Brian Gast to be a member of the Board
of Directors of the Parent other than by reason of death or permanent
disability or removal for "cause," which shall include without limitation (A)
gross negligence or willful misconduct, (B) failure to perform diligently and
competently his duties as a director and as chief executive officer, or (C)
conviction of a felony; (b) following the issuance and sale of capital stock
of the Parent pursuant to an initial public offering registered under the
Securities Act, (i) the acquisition of beneficial ownership, directly or
indirectly, by any Person or group (within the meaning of Securities Exchange
Act) other than the Founders, of shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Parent; or (ii) occupation of a majority of the seats
(other than vacant seats) on the Board of Directors of the Parent by Persons
who were neither (A) recommended by the Board of Directors of the Parent to
be elected by the stockholders of the Parent nor (B) appointed by directors
so nominated; or (c) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person other than the Parent or a wholly
owned Subsidiary of any ownership or equity interest in the Borrower.
"CHANGE IN LAW" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
3
<PAGE>
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"CLASS", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are Tranche 1
Loans or Tranche 2 Loans.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" means any and all "Collateral" as defined in the
Security Agreements.
"COLLATERAL AGENT" means State Street Bank and Trust Company, in
its capacity as collateral agent for the Secured Parties.
"COMMITMENT" means, with respect to each Lender, the commitment,
if any, of such Lender to make Loans hereunder during any Availability Period,
expressed as an amount representing the maximum principal amount of the Loans to
be made by such Lender hereunder, as such commitment may be (a) reduced from
time to time pursuant to Section 2.06 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 9.04. The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable. The initial aggregate amount of the Lenders'
Commitments is $50,000,000.
"CONSOLIDATED DEBT SERVICE" means, for any period, Consolidated
Interest Expense for such period plus any scheduled payments of principal of
Indebtedness of the Borrower and the Subsidiaries during such period.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net
Income for such period (adjusted to exclude all extraordinary items and
Non-Recurring Items), plus, without duplication and to the extent deducted from
revenues in determining Consolidated Net Income, the sum of (a) the aggregate
amount of Consolidated Interest Expense for such period, (b) the aggregate
amount of income tax expense for such period, and (c) all amounts attributable
to depreciation and amortization for such period plus, without duplication,
preferred stock dividends payable in cash in respect of any Disqualified Stock
of the Borrower or any Subsidiary for such period, all as determined on a
consolidated basis with respect to the Borrower and the Subsidiaries in
accordance with GAAP.
"CONSOLIDATED GROSS REVENUES" means, for any period, consolidated
gross revenues of the Borrower and the Subsidiaries attributable to sales of its
services to Subscribers (and in any event excluding all revenues arising from
the sales of equipment).
"CONSOLIDATED INDEBTEDNESS" means, as of any date of
determination, the aggregate principal amount of Indebtedness (including
Disqualified Stock) of the Borrower and the Subsidiaries outstanding as of such
date determined on a consolidated basis in accordance with GAAP.
4
<PAGE>
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of
(a) the interest expense, both expensed and capitalized (including the interest
component in respect of Capital Lease Obligations, but excluding any such
interest expense of any Person for any period that the income (or loss) of such
Person is excluded from the calculation of Consolidated Net Income by reason of
clause (b) of the definition of "Consolidated Net Income"), accrued by the
Borrower and the Subsidiaries during such period plus (b) preferred stock
dividends in respect of Disqualified Stock of the Borrower and the Subsidiaries
for such period, in each case determined on a consolidated basis in accordance
with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, net income or
loss of the Borrower and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; PROVIDED that there shall be
excluded (a) the income of any Person in which any other Person (other than the
Borrower or any Subsidiary or any director holding qualifying shares in
compliance with applicable law) has a joint interest, except to the extent of
the amount of dividends or other distributions (including distributions made as
a return of capital or repayment of principal of advances) actually paid to the
Borrower or any Subsidiary by such Person, and (b) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary or is merged into or
consolidated with the Borrower or any Subsidiary or the date such Person's
assets are acquired by the Borrower or any Subsidiary.
"CONSOLIDATED PARENT EBITDA" means, for any period, Consolidated
Parent Net Income for such period (adjusted to exclude all extraordinary items
and Non-Recurring Parent Items), plus, without duplication and to the extent
deducted from revenues in determining Consolidated Parent Net Income, the sum of
(a) the aggregate amount of Consolidated Parent Interest Expense for such
period, (b) the aggregate amount of income tax expense for such period, and (c)
all amounts attributable to depreciation and amortization for such period plus,
without duplication, preferred stock dividends payable in cash in respect of any
Disqualified Stock of the Parent, the Borrower or any Subsidiary for such
period, all as determined on a consolidated basis with respect to the Parent,
the Borrower and the Subsidiaries in accordance with GAAP.
"CONSOLIDATED PARENT INDEBTEDNESS" means, as of any date of
determination, the aggregate principal amount of Indebtedness (including
Disqualified Stock) of the Parent, the Borrower and the Subsidiaries outstanding
as of such date determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED PARENT INTEREST EXPENSE" means, for any period, the
sum of (a) the interest expense, both expensed and capitalized (including the
interest component in respect of Capital Lease Obligations, but excluding any
such interest expense of any Person for any period that the income (or loss) of
such Person is excluded from the calculation of Consolidated Parent Net Income
by reason of clause (b) of the definition of "Consolidated Parent Net Income"),
accrued by the Parent, the Borrower and the Subsidiaries during such period plus
(b) preferred stock dividends in respect of Disqualified Stock of the Parent,
the Borrower and the Subsidiaries for such period, in each case determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED PARENT NET INCOME" means, for any period, net income
or loss of the Parent, the Borrower and the Subsidiaries for such period
determined on a consolidated basis
5
<PAGE>
in accordance with GAAP; PROVIDED that there shall be excluded (a) the income of
any Person in which any other Person (other than the Parent, the Borrower or any
Subsidiary or any director holding qualifying shares in compliance with
applicable law) has a joint interest, except to the extent of the amount of
dividends or other distributions (including distributions made as a return of
capital or repayment of principal of advances) actually paid to the Parent, the
Borrower or any Subsidiary by such Person, and (b) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary or is merged into or
consolidated with the Parent, the Borrower or any Subsidiary or the date such
Person's assets are acquired by the Parent, the Borrower or any Subsidiary.
"CONTROL" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"DEFAULT" means any event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"DISCLOSED MATTERS" means the actions, suits and proceedings and
the environmental matters disclosed in Schedule 3.06.
"DISQUALIFIED STOCK" means any capital stock of any Person which
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock, (iii) requires the payment of dividends other than dividends
payable solely in additional shares of capital stock of such Person (other than
Disqualified Stock) or (iv) is redeemable or subject to required repurchase at
the option of the holder thereof, in whole or in part.
"DOLLARS" or "$" refers to lawful money of the United States of
America.
"EFFECTIVE DATE" means the date on which the conditions specified
in Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"ELIGIBLE INSTITUTION" means a commercial banking institution that
has a combined capital and surplus of not less than $500 million (or its
equivalent in foreign currency) whose debt is rated "A" or better by S&P or "A2"
or better by Moody's at the time as of which any investment or rollover therein
is made.
"ELIGIBLE PERSON" means (a) a commercial bank, an insurance
company or other similar financial institution or (b) any other entity which is
(or which is managed by a manager which manages funds which are) primarily
engaged in making, purchasing or otherwise investing in commercial loans or
extending, or investing in extensions of, credit for its own account in the
ordinary course of business; PROVIDED, HOWEVER, that in no event may any Person
be an Eligible Person if it is engaged in a Qualifying Business or if it is
Controlled by a Person that is engaged in a Qualifying Business.
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"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Parent or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"EVENT OF DEFAULT" has the meaning assigned to such term in
Article VII.
"EXCESS CASH FLOW" means, for any fiscal year of the Borrower, the
sum (without duplication) of the following (provided that Excess Cash Flow shall
be zero for any fiscal year that the sum of the following would otherwise be
less than zero):
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(a) Consolidated Net Income for such fiscal year, adjusted to
exclude any gains or losses attributable to Prepayment Events; PLUS
(b) depreciation, amortization and other non-cash charges or
losses deducted in determining such Consolidated Net Income for such fiscal year
(including any interest expense accrued for such fiscal year that is not payable
currently in cash to the extent deducted in determining Consolidated Net
Income); PLUS
(c) the sum of (i) the amount, if any, by which Net Working
Capital decreased during such fiscal year plus (ii) the amount, if any, by which
the consolidated deferred revenues of the Borrower and the Subsidiaries
increased during such fiscal year plus (iii) the aggregate principal amount of
Capital Lease Obligations and other Indebtedness incurred by the Borrower or any
of the Subsidiaries during such fiscal year to finance Capital Expenditures, to
the extent that principal payments in respect of such Indebtedness would not be
excluded from clause (f) below when made; MINUS
(d) the sum of (i) any non-cash gains included in determining
such Consolidated Net Income for such fiscal year plus (ii) the amount, if any,
by which Net Working Capital increased during such fiscal year plus (iii) the
amount, if any, by which the consolidated deferred revenues of the Borrower and
the Subsidiaries decreased during such fiscal year; minus
(e) Capital Expenditures for such fiscal year; minus
(f) the aggregate principal amount of Indebtedness, repaid or
prepaid by the Borrower and the Subsidiaries during such fiscal year, excluding
(i) Loans prepaid pursuant to Section 2.09(b) or (c), (ii) repayments or
prepayments of Indebtedness financed by incurring other Indebtedness, to the
extent that mandatory principal payments in respect of such other Indebtedness
would not be excluded from this clause (f) when made and (iii) Indebtedness
referred to in clause (ii) of Section 6.01.
"EXCLUDED TAXES" means, with respect to either Agent, any Lender
or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.17(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section 2.15(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from the
Borrower with respect to such withholding tax pursuant to Section 2.15(a).
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds
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transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average (rounded upwards, if necessary, to the next 1/100
of 1%) of the quotations for such day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"FINANCIAL OFFICER" means, with respect to any Person, the chief
executive officer, the chief financial officer, principal accounting officer,
treasurer or controller of such Person.
"FOREIGN LENDER" means any Lender that is organized under the laws
of a jurisdiction other than the United States of America, any State thereof or
the District of Columbia.
"FOUNDERS" means Brian Gast, Leonard Allsup, Bruce E. Dines, Rex
H. Humston and Patrick M. Green.
"GAAP" means, subject to Section 1.04, generally accepted
accounting principles in the United States of America.
"GOVERNMENTAL AUTHORITY" means the government of the United States
of America, any other nation or any political subdivision thereof, whether state
or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"GUARANTEE" of or by any Person (the "GUARANTOR") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; PROVIDED, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"GUARANTEE AGREEMENT" means the Guarantee and Subordination
Agreement among the Parent, the Subsidiaries and the Administrative Agent,
substantially in the form of Exhibit B.
"HAZARDOUS MATERIALS" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon
9
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gas, infectious or medical wastes and all other substances or wastes of any
nature regulated pursuant to any Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid, (d)
all obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding accounts payable incurred in the ordinary course of business that are
not overdue by more than 60 days), (f) all Indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (g)
all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease
Obligations of such Person, (i) all obligations, contingent or otherwise, of
such Person as an account party in respect of letters of credit and letters of
guaranty, (j) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances and (k) all Disqualified Stock of such Person.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general partner) to
the extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor. The
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INDEMNITY AND CONTRIBUTION AGREEMENT" means the Indemnity,
Subrogation and Contribution Agreement among the Loan Parties and the
Administrative Agent, substantially in the form of Exhibit C.
"INTEREST ELECTION REQUEST" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.05.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan,
the last day of each March, June, September and December and (b) with respect to
any LIBOR Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a LIBOR Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period.
"INTEREST PERIOD" means, with respect to any LIBOR Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in
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the calendar month that is one, two, three or six months thereafter, as the
Borrower may elect; PROVIDED, that (a) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (b) any Interest Period that commences on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of such
Interest Period. For purposes hereof, the date of a Borrowing initially shall be
the date on which such Borrowing is made and thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
"LANDLORD LETTER" means a letter in the form of Exhibit G or any
other letter approved by the Administrative Agent.
"LENDERS" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LIBOR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"LIBO RATE" means, with respect to any LIBOR Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets
Service (or on any successor or substitute page of such service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO RATE"
with respect to such LIBOR Borrowing for such Interest Period shall be the rate
at which dollar deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office of the Administrative
Agent (or, if the Administrative Agent at the time is not a commercial bank, any
commercial bank based in New York City selected by the Administrative Agent for
the purpose of quoting such rate, provided that such commercial bank has a
combined capital and surplus and undivided profits of not less than
$500,000,000) in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LICENSES" has the meaning set forth in Section 3.05(c).
"LIEN" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any
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of the foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"LOAN DOCUMENTS" means this Agreement, the Guarantee Agreement,
the Security Documents and the Indemnity and Contribution Agreement.
"LOAN PARTIES" means the Parent, the Borrower and the
Subsidiaries.
"LOANS" means the loans made or deemed made to the Borrower
pursuant to this Agreement.
"LUCENT" means Lucent Technologies Inc.
"LUCENT LENDER" means any Lender that is Lucent or an Affiliate of
Lucent.
"LUCENT PRODUCT" means any products or services purchased by the
Borrower pursuant to the Supply Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, condition (financial or otherwise), operations, performance or
properties of the Parent, (b) the business, condition (financial or otherwise),
operations, performance or properties of the Borrower and the Subsidiaries,
taken as a whole, (c) the ability of the Parent, the Borrower or any other Loan
Party to perform any of its obligations under any Loan Document or (d) the
legality, validity, binding effect or enforceability of this Agreement or any
other Loan Document.
"MATERIAL INDEBTEDNESS" means Indebtedness (other than the Loans),
or obligations in respect of one or more Hedging Agreements, of any one or more
of the Loan Parties in an aggregate principal amount exceeding $500,000. For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of a Loan Party in respect of any Hedging Agreement at any time
shall be the maximum aggregate amount (giving effect to any netting agreements)
that such Loan Party would be required to pay if such Hedging Agreement were
terminated at such time.
"MATURITY DATE" means June 30, 2006.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET PROCEEDS" means, with respect to any casualty or condemnation
event, (a) the cash proceeds received in respect of such event including (i) in
the case of a casualty, insurance proceeds, and (ii) in the case of a
condemnation or similar event, condemnation awards and similar payments, net of
(b) the sum of all reasonable fees and out-of-pocket expenses paid by the
Borrower and the Subsidiaries to third parties (other than Affiliates) in
connection with such event.
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"NET WORKING CAPITAL" means, at any date, (a) the consolidated
current assets of the Borrower and the Subsidiaries as of such date (excluding
cash and Permitted Investments) minus (b) the consolidated current liabilities
of the Borrower and the Subsidiaries as of such date (excluding current
liabilities in respect of Indebtedness), determined on a consolidated basis in
accordance with GAAP. Net Working Capital at any date may be a positive or
negative number. Net Working Capital increases when it becomes more positive or
less negative and decreases when it becomes less positive or more negative.
"NON-RECURRING ITEMS" means, for any period, (a) all non-recurring
items that do not involve any payment of cash by the Borrower or any Subsidiary
during such period or any future period and (b) non-recurring items set forth on
the Borrower's consolidated statement of operations for such period below the
operating income line in respect of (i) gains or losses on sales or dispositions
of assets outside the ordinary course of business, (ii) discontinued operations,
(iii) the effects of changes in accounting principles or methods, (iv)
write-downs on any investments of the Borrower or any Subsidiary in any Person
(other than the Borrower or a Subsidiary) and (v) any restructuring charges,
including the amount of any such restructuring charge to cover cash payouts to
laid-off employees of the Borrower or a Subsidiary.
"NON-RECURRING PARENT ITEMS" means, for any period, (a) all
non-recurring items that do not involve any payment of cash by the Parent, the
Borrower or any Subsidiary during such period or any future period and (b)
non-recurring items set forth on the Parent's consolidated statement of
operations for such period below the operating income line in respect of (i)
gains or losses on sales or dispositions of assets outside the ordinary course
of business, (ii) discontinued operations, (iii) the effects of changes in
accounting principles or methods, (iv) write-downs on any investments of the
Parent, the Borrower or any Subsidiary in any Person (other than the Parent, the
Borrower or a Subsidiary) and (v) any restructuring charges, including the
amount of any such restructuring charge to cover cash payouts to laid-off
employees of the Parent, the Borrower or a Subsidiary.
"OBLIGATIONS" means all obligations secured under the Loan
Documents.
"OTHER TAXES" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PARENT" means Jato Communications Corp., a Delaware corporation.
"PARTIAL TERMINATION DATE" has the meaning set forth in the
Security Agreement (Parent).
"PAYMENT DATE" means September 30, 2002 and each Quarterly Date
thereafter ending on and including the Maturity Date.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"PENDING APPLICATIONS" has the meaning set forth in Section
3.05(c).
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"PERFECTION CERTIFICATE" means, with respect to the Borrower, a
certificate in the form of Exhibit A to the Security Agreement (Borrower), with
respect to any Subsidiary, a similar certificate in the form of the applicable
Security Document delivered by such Subsidiary and, with respect to the Parent,
a certificate in the form of Exhibit A to the Security Agreement (Parent) or any
other form approved by the Collateral Agent.
"PERMITTED ENCUMBRANCES" means:
(a) Liens imposed by law for taxes, assessments, governmental
charges or similar claims that are not yet due or are being contested in
compliance with Section 5.05;
(b) statutory or common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other similar
Liens, arising in the ordinary course of business and securing obligations that
are not yet delinquent or are being contested in compliance with Section 5.05;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;
(d) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory or regulatory obligations, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a like nature, in each case in the ordinary course of business,
and a bank's unexercised right of set-off with respect to deposits made in the
ordinary course;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII;
(f) easements, municipal and zoning ordinances, rights-of-way
and similar encumbrances on or defects or other irregularities of title to real
property imposed by law or arising in the ordinary course of business that do
not secure any monetary obligations and do not materially detract from the value
of the affected property or interfere with the ordinary conduct of business of
the Parent, the Borrower or any Subsidiary;
(g) interests of lessees under leases or subleases granted by
the Parent, the Borrower or a Subsidiary as lessor that do not materially
interfere with the ordinary course of business of the Parent or the Borrower and
the Subsidiaries, taken as a whole;
(h) interests of licensees under licenses or sublicenses
granted by the Parent, the Borrower or a Subsidiary as licensor that do not
materially interfere with the ordinary course of business of the Parent or the
Borrower and the Subsidiaries, taken as a whole;
(i) Liens encumbering property or assets under construction
arising from progress or partial payments made by a customer of the Parent, the
Borrower or a Subsidiary relating to such property or assets;
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(j) any interest or title of a lessor in any property subject
to any lease otherwise not entered into in violation of the Loan Documents;
(k) any interest or title of a licensor in any property subject
to any license otherwise not entered into in violation of the Loan Documents;
(l) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with the
importation of goods; and
(m) Liens in favor of a Securities Intermediary pursuant to
such Securities Intermediary's customary customer account agreement; provided
that any such Liens shall at no time secure any Indebtedness or obligations
other than customary fees and charges payable to such Securities Intermediary.
PROVIDED, that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"PERMITTED EXPENSES" means Capital Expenditures (excluding Capital
Expenditures financed by the incurrence of Capital Lease Obligations) for
equipment and other property to be used by the Borrower in the telecommunication
network related to Lucent Product in an aggregate amount not exceeding three
percent (3%) of the Purchase Price, plus any fees paid or payable to Lucent
pursuant to Section 2.10.
"PERMITTED INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing not more than 365 days after the date of acquisition thereof;
(b) commercial paper of a domestic issuer rated "A-1" or better
by S&P or "P-1" or better by Moody's maturing not more than 365 days after the
date of acquisition thereof;
(c) certificates of deposit, banker's acceptances and time
deposits maturing not more than 365 days after the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, an Eligible Institution;
(d) master note or deposit arrangements with securities of the
types described in paragraphs (a), (b) and (c) above;
(e) money market preferred stock of a corporation organized
under the laws of a jurisdiction within the United States of America rated "AA"
or better by S&P or "Aa" or better by Moody's; PROVIDED HOWEVER, that any such
debt security that is rated by both such rating agencies shall be rated "AA" or
better by S&P or Moody's;
(f) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and entered
into with an Eligible Institution; and
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(g) any fund investing exclusively in investments of the types
described in clauses (a) through (f) above.
"PERMITTED JURISDICTION" means a jurisdiction which is both a
Permitted Regulatory Jurisdiction and a Permitted UCC Jurisdiction.
"PERMITTED PREFERRED STOCK" means capital stock of the Borrower
(other than Disqualified Stock of the Borrower) of any class or classes (however
designated) that is preferred as to the payment of dividends, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of the Borrower, over shares of capital stock of any other class of
the Borrower.
"PERMITTED REGULATORY JURISDICTION" means a jurisdiction in which
all applicable Governmental Authorities have (i) certified the Borrower as a
competitive local exchange carrier (as defined in the Telecommunications Act of
1996); (ii) approved all interconnection agreements to which the Borrower is a
party relating to such jurisdiction; and (iii) approved the Borrower's tariff or
tariffs with respect to such jurisdiction; PROVIDED, HOWEVER, that any such
jurisdiction shall be a Permitted Regulatory Jurisdiction only if the Agents and
the Lenders shall have received an opinion of legal counsel for the Borrower in
form and substance reasonably satisfactory to the Administrative Agent as to
such matters.
"PERMITTED UCC JURISDICTION" means (i) the jurisdictions in which
the Borrower indicates in the certificate delivered pursuant to clause (i) of
Section 4.01 that the Borrower maintains or anticipates maintaining equipment at
any time the Loans are to be outstanding and (ii) any other jurisdiction in
which the Borrower or a Subsidiary indicates in a certificate delivered pursuant
to clause (b) of Section 5.03 or (in the case of a Subsidiary) in connection
with the execution and delivery of any Security Document pursuant to Section
5.14 that the Borrower or such Subsidiary maintains or anticipates maintaining
equipment at any time the Loans are to be outstanding; PROVIDED that (x) any
such jurisdiction described in clause (i) or (ii) of this definition shall be a
Permitted UCC Jurisdiction only if the certificate most recently delivered by
the Borrower or such Subsidiary pursuant to clause (i) of Section 4.01 (in the
case of the Borrower), in connection with the execution and delivery of any
Security Documents required to be delivered pursuant to Section 5.14 (in the
case of a Subsidiary) or pursuant to clause (b) of Section 5.03 (in the case of
the Borrower or any Subsidiary) certifies to the effect required under clause
(ii) of clause (b) of Section 5.03 with respect in such jurisdiction and (y) in
the case of any such other jurisdiction described in clause (ii) of this
definition, such other jurisdiction shall be a Permitted UCC Jurisdiction only
if the Collateral Agent shall have received an opinion of legal counsel for the
Borrower in form and substance reasonably satisfactory to the Collateral Agent
as to the actions taken in order for the Borrower or such Subsidiary to be able
to make the certifications required under clause (ii) of clause (b) of Section
5.03 and the validity and effectiveness of such actions, including without
limitation, their ability to withstand any challenge in a bankruptcy proceeding
and the priority of security interest created by the Security Documents on
equipment to be located in such jurisdiction.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
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"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 302 of ERISA, and in respect of which the
Parent or the Borrower or any ERISA Affiliate is (or, if such plan were
terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENT (BORROWER)" means the Pledge Agreement between
the Borrower and the Collateral Agent, substantially in the form of Exhibit E.
"PLEDGE AGREEMENT (PARENT)" means the Pledge Agreement between
the Parent and the Collateral Agent, substantially in the form of Exhibit F.
"PREPAYMENT EVENT" means any casualty or other insured damage to,
or any taking under power of eminent domain or by condemnation or similar
proceeding of, any property or asset of the Borrower or any Subsidiary after the
Effective Date; PROVIDED that (i) such events shall not constitute "Prepayment
Events" to the extent that the aggregate Net Proceeds from all such events are
less than $100,000 during any fiscal year of the Borrower and (ii) any such
event shall not constitute a "Prepayment Event" if the Borrower elects (by
notice to the Administrative Agent within five Business Days after receipt of
the Net Proceeds of such event) to apply the Net Proceeds of such event to
repair, restore or replace the affected property or asset or to reinvest such
Net Proceeds in Additional Assets as promptly as practicable, but in any event
within 90 days, after the receipt of the Net Proceeds of such event; PROVIDED
FURTHER that, if at the expiration of the 90-day period referred to in this
clause (ii) less than all the Net Proceeds of such event have been reinvested or
applied as provided therein, then a "Prepayment Event" shall be deemed to have
occurred at the expiration of such 90-day period with Net Proceeds equal to the
Net Proceeds that have not been so reinvested or applied.
"PRIME RATE" means the rate of interest per annum published from
time to time in the "Money Rates" column (or any successor column) of THE WALL
STREET JOURNAL as the prime rate or, if such rate shall cease to be so published
or is not available for any reason, the rate of interest publicly announced from
time to time by any "money center" bank based in New York City selected by the
Administrative Agent for the purpose of quoting such rate, provided such
commercial bank has a combined capital and surplus and undivided profits of not
less than $500,000,000. Each change in the Prime Rate shall be effective from
and including the date such change is published.
"PURCHASE PRICE" means amounts paid or payable for Lucent Product
pursuant to invoices delivered pursuant to the Supply Agreement.
"QUALIFYING BUSINESS" means the business of providing digital
connections to broadband networks and related telecommunications services and
products.
"QUARTERLY DATE" means the last day of each of March, June,
September and December.
"REGISTER" has the meaning set forth in Section 9.04.
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"RELATED PARTIES" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"REPAYMENT" means, in respect of any Indebtedness, the direct or
indirect repayment, prepayment, redemption, purchase, acquisition, defeasance,
retirement or other satisfaction of the principal of such Indebtedness, in whole
or in part, whether optional or mandatory. "REPAY" has a meaning correlative
thereto.
"REQUIRED LENDERS" means, at any time, Lenders having outstanding
Loans and Commitments representing more than 50% of the sum of the total
outstanding Loans and Commitments at such time; PROVIDED that at any time that
Lucent Lenders have outstanding Loans and Commitments representing more than 50%
of the sum of all outstanding Loans and Commitments at such time, "Required
Lenders" means each of (i) the Lucent Lenders at such time and (ii) other
Lenders holding more than 50% of the outstanding Loans and Commitments
(excluding those held by Lucent Lenders) at such time.
"RESTRICTED PAYMENT" means (a) any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Borrower or any Subsidiary (or until the
Partial Termination Date, the Parent), (b) any Repayment of any Subordinated
Indebtedness (or until the Partial Termination Date, any Repayment of any
Indebtedness of the Parent incurred pursuant to clause (vii) of Section 6.01) or
(c) any payment (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Borrower or any Subsidiary (or until the Partial
Termination Date, the Parent) or any option, warrant or other right to acquire
any such shares of capital stock of the Borrower or any Subsidiary ( or until
the Partial Termination Date, the Parent).
"S&P" means Standard & Poor's Ratings Services, a Division of the
McGraw-Hill Companies.
"SECURED PARTIES" means the Collateral Agent, the Administrative
Agent and the Lenders.
"SECURITIES ACCOUNT CONTROL AGREEMENT (BORROWER)" means the
Securities Account Control Agreement (Borrower) between the Borrower, the
Securities Intermediary (as defined therein) and the Collateral Agent,
substantially in the form of Exhibit G to the Securities Agreement (Borrower).
"SECURITIES ACCOUNT CONTROL AGREEMENT (PARENT)" means the
Securities Account Control Agreement (Parent) between the Parent, the Securities
Intermediary (as defined therein) and the Collateral Agent, substantially in the
form of Exhibit G to the Securities Agreement (Parent).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, and the rules of the Securities and Exchange Commission
thereunder as in effect from time to time.
"SECURITIES INTERMEDIARY" means any Person that is a party to a
Securities Account Control Agreement (Parent) or Securities Account Control
Agreement (Borrower) as the "Securities Intermediary" thereunder.
"SECURITY AGREEMENT (BORROWER)" means the Security Agreement
(Borrower) between the Borrower and the Collateral Agent, substantially in the
form of Exhibit D.
"SECURITY AGREEMENT (PARENT)" means the Security Agreement
(Parent) between the Parent and the Collateral, substantially in the form of
Exhibit H.
"SECURITY AGREEMENTS" means the Security Agreement (Borrower) and
the Security Agreement (Parent).
"SECURITY DOCUMENTS" means the Security Agreement (Borrower), the
Security Agreement (Parent), the Pledge Agreement (Borrower), the Pledge
Agreement (Parent), the Securities Account Control Agreement (Borrower) and the
Securities Account Control Agreement (Parent) and any other agreements delivered
pursuant to Section 5.14.
"SENIOR INDEBTEDNESS" means any Indebtedness of the Borrower or
any Subsidiary included in Consolidated Indebtedness that is not Subordinated
Indebtedness.
"SENIOR OFFICER" means any senior officer of the Parent having
substantial responsibilities for the management and supervision of the business,
operations and affairs of the Parent, including, with respect to finance, sales,
customer care, carrier relations, marketing, operations, technology and product
development.
"SERIES B INVESTORS" means the holders of the Series B Preferred
Stock of the Parent.
"STATUTORY RESERVE RATE" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which any Lender subject to regulation
by the Board is subject with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. LIBOR Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
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"SUBORDINATED INDEBTEDNESS" of means any Indebtedness of the
Borrower owing to the Parent subordinated in right of payment to the payment of
the Obligations upon terms and conditions satisfactory to the Required Lenders.
"SUBSCRIBERS" means customers of the Borrower or any Subsidiary
obligated to pay cash for services of the Borrower or such Subsidiary at market
rates.
"SUBSIDIARY" means, with respect to any Person (the "PARENT") at
any date, any corporation, limited liability company, partnership, association
or other entity of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or, in
the case of a partnership, more than 50% of the general partnership interests
are, as of such date, owned, controlled or held by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"SUBSIDIARY" means any subsidiary of the Borrower.
"SUPPLY AGREEMENT" means the Supply Agreement dated as of February
12, 1999 between Lucent and the Parent.
"TAXES" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"TOTAL CAPITALIZATION" means, as of any date of determination, the
sum of (a) Consolidated Indebtedness as of such date plus (b) the amount of paid
in capital of the Borrower on such date determined on a consolidated basis in
accordance with GAAP plus (c), if positive, the retained earnings of the
Borrower on such date determined on a consolidated basis in accordance with
GAAP.
"TOTAL PARENT CAPITALIZATION" means, as of any date of
determination, the sum of (a) Consolidated Parent Indebtedness as of such date
plus (b) the amount of paid in capital of the Parent on such date determined on
a consolidated basis in accordance with GAAP plus (c), if positive, the retained
earnings of the Parent on such date determined on a consolidated basis in
accordance with GAAP.
"TRANCHE 1 AVAILABILITY PERIOD" means the period from and
including the Effective Date to but excluding the earlier of (i) the Tranche 1
Availability Termination Date and (ii) the date of termination of the Tranche 1
Commitment.
"TRANCHE 1 AVAILABILITY TERMINATION DATE" means the earlier of (i)
the date twenty four months after the Effective Date and (ii) the date the
Tranche 1 Commitments are fully drawn.
"TRANCHE 1 COMMITMENT" means the Commitment with respect to
Tranche 1 Loans in an amount not to exceed $30,000,000.
"TRANCHE 1 LOANS" means Loans made or deemed made pursuant to this
Agreement during the Tranche 1 Availability Period.
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"TRANCHE 2 AVAILABILITY PERIOD" means the period from and
including the Tranche 1 Availability Termination Date to but excluding the
earlier of (i) the Tranche 2 Availability Termination Date and the (ii) date of
termination of the Tranche 2 Commitment.
"TRANCHE 2 AVAILABILITY TERMINATION DATE" means the earlier of
(i) the date thirty six months after the Effective Date and (ii) the date the
Tranche 2 Commitments are fully drawn, unless extended pursuant to Section
2.06(a).
"TRANCHE 2 COMMITMENT" means the Commitment with respect to
Tranche 2 Loans in an amount not to exceed $20,000,000.
"TRANCHE 2 LOANS" means Loans made or deemed made pursuant to this
Agreement during the Tranche 2 Availability Period.
"TRANSACTIONS" means the execution, delivery and performance by
each Loan Party of the Loan Documents to which it is to be a party, the
borrowing of Loans and the use of the proceeds thereof.
"TYPE", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
Section 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Tranche 1 Loan") or by Type (e.g., a "LIBOR Loan") or by Class and
Type (e.g., a "Tranche 1 LIBOR Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Tranche 1 Borrowing") or by Type (e.g., a "LIBOR
Borrowing") or by Class and Type (e.g., a "Tranche 1 LIBOR Borrowing").
Section 1.03. TERMS GENERALLY. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without
limitation." The word "will" shall be construed to have the same meaning and
effect as the word "shall." Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed
to include such Person's successors and assigns, (c) the words "herein",
"hereof" and "hereunder", and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and
Exhibits and Schedules to, this Agreement and (e) the words "asset" and
"property" shall be construed to have the same
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meaning and effect and to refer to any and all tangible and intangible assets
and properties, including cash, securities, accounts, contract rights,
licenses and intellectual property.
Section 1.04. ACCOUNTING TERMS; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; PROVIDED
that, if the Parent notifies the Administrative Agent that the Parent requests
an amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the Parent
that the Required Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE LOANS
Section 2.01. COMMITMENTS. Subject to the terms and conditions
set forth herein, each Lender agrees to make Loans to the Borrower at any time
and from time to time during each Availability Period in an aggregate principal
amount not exceeding its Commitment at the time. Amounts repaid in respect of
Loans thereon may not be reborrowed.
Section 2.02. LOANS AND BORROWINGS.
(a) Each Loan shall be made as part of a Borrowing consisting
of Loans of the same Class and Type made by the Lenders ratably in accordance
with their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; PROVIDED that the Commitments of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.12, each Borrowing shall be comprised
entirely of LIBOR Loans or ABR Loans as the Borrower may request in accordance
herewith. Each Lender at its option may make any LIBOR Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan;
PROVIDED that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan thereon in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any LIBOR
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $100,000 and not less than $1,000,000. Borrowings of more than one
Type and Class may be outstanding at the same time; PROVIDED that there shall
not be more than six LIBOR Borrowings with respect to Tranche 1 Loans and six
LIBOR Borrowings with respect to Tranche 2 Loans outstanding at the same time.
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(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing as a LIBOR Borrowing if the Interest Period requested with respect
thereto would end after the Maturity Date for the Loans included in such
Borrowing.
Section 2.03. REQUESTS FOR BORROWINGS. To request a Borrowing,
the Borrower shall notify the Administrative Agent of such request by telephone
(a) in the case of a LIBOR Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one
Business Day before the date of the proposed Borrowing; PROVIDED that (i) the
Borrower may make only one request for a Borrowing in any single calendar month
(it being understood that all Borrowings made by the Borrower on the same date
shall be treated as a single request for a Borrowing for purposes of this
limitation) and (ii) if any Lucent Lender has a Commitment at the time of such
Borrowing and any portion of the proceeds of such Borrowing to be funded by such
Lucent Lender would be required to be funded by such Lucent Lender other than as
a credit against amounts owing to Lucent or an Affiliate of Lucent as provided
in Section 2.04, then the applicable Borrowing Request shall be made not later
than five Business Days before the date of the proposed Borrowing (in the case
of a LIBOR Borrowing) or three Business Days before the date of the proposed
Borrowing (in the case of an ABR Borrowing). Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Borrowing Request in a form
approved by the Administrative Agent and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following information
in compliance with Section 2.02:
(i) the aggregate amount of such Borrowing and a reasonably
detailed description of the use of the proceeds therefrom (and each
written Borrowing Request shall attach copies of all invoices to be paid
with such proceeds);
(ii the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a LIBOR Borrowing or an ABR
Borrowing;
(iv) in the case of a LIBOR Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the account or accounts to which
funds (if any) are to be disbursed, which shall comply with the
requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested LIBOR Borrowing, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
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Section 2.04. FUNDING OF BORROWINGS.
(a) Each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds by
12:00 noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
designated by the Borrower in the applicable Borrowing Request. Notwithstanding
the foregoing, if the proceeds of any Borrowing are to be used to make any
payment to or for the account of Lucent or any Affiliate thereof (i) if any
Lucent Lender has a Commitment, then such Lucent Lender may make its Loan by
crediting the amount thereof against the payment obligations to Lucent or any
such Affiliate and shall be deemed to have made a Loan in the amount of such
credit and (ii) the Administrative Agent will make the Loans of the other
Lenders available to the Borrower by promptly crediting the amounts so received
from such other Lenders, in immediately available funds, to an account of Lucent
maintained with the Administrative Agent for such purpose, to the extent of the
proceeds of such Loans designated to be used to make payments to Lucent or any
of its Affiliates (after giving effect to any credits pursuant to clause (i)
above) and the balance, if any, of such proceeds shall be made available to the
Borrower as provided in the preceding sentence.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans of the same Class. If such Lender
pays such amount to the Administrative Agent, then such amount shall constitute
such Lender's Loan included in such Borrowing. Nothing in this Section 2.04(b)
shall prejudice the Borrower's rights against any such defaulting Lender.
Section 2.05. INTEREST ELECTIONS.
(a) Each Borrowing initially shall be of the Type specified in
the applicable Borrowing Request and, in the case of a LIBOR Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the Borrower may elect to convert such Borrowing to a different Type
or to continue such Borrowing and, in the case of a LIBOR Borrowing, may elect
Interest Periods therefor, all as provided in this Section. The Borrower may
elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans
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comprising such Borrowing, and the Loans comprising each such portion shall
be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Borrowing of the Type resulting from such election to be made
on the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02 and paragraph
(f) of this Section:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be a LIBOR Borrowing
or an ABR Borrowing; and
(iv) if the resulting Borrowing is a LIBOR Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period."
If any such Interest Election Request requests a LIBOR Borrowing but does not
specify an Interest Period, then the Borrower shall be deemed to have selected
an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request,
the Administrative Agent shall advise each Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a LIBOR Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing, then, so long as an Event of Default is
continuing (i) no outstanding Borrowing may be converted to or continued as a
LIBOR Borrowing at the end of the then current Interest Period and (ii) unless
repaid, each LIBOR Borrowing shall be converted to an ABR Borrowing at the end
of the Interest Period applicable thereto.
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(f) A Borrowing of any Class may not be converted to or
continued as a LIBOR Borrowing if after giving effect thereto (i) the Interest
Period therefor would commence before and end after a date on which any
principal of the Loans of such Class is scheduled to be repaid and (ii) the sum
of the aggregate principal amount of outstanding LIBOR Borrowings of such Class
with Interest Periods ending on or prior to such scheduled repayment date plus
the aggregate principal amount of outstanding ABR Borrowings of such Class would
be less than the aggregate principal amount of Loans of such Class required to
be repaid on such scheduled repayment date.
Section 2.06. TERMINATION AND REDUCTION OF COMMITMENTS.
(a) Unless previously terminated, the Commitments with respect
to Tranche 1 Loans shall terminate on the Tranche 1 Availability Termination
Date and the Commitments with respect to Tranche 2 Loans shall terminate on the
Tranche 2 Availability Termination Date.
(b) On the date of each Loan made by any Lender such Lender's
Commitment shall be reduced by an amount equal to such Loan.
(c) If a prepayment would be required pursuant to paragraph (b)
or (c) of Section 2.09, all Commitments then in effect shall be reduced ratably
by an aggregate amount equal to the excess, if any, of the amount of the
required prepayment over the aggregate principal amount of Loans outstanding
immediately prior to giving effect to such prepayment.
(d) The Borrower may at any time terminate, or from time to
time reduce, the Commitments; PROVIDED that each reduction of the Commitments
pursuant to this paragraph (d) shall be in an amount that is an integral
multiple of $1,000,000 and not less than $1,000,000.
(e) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (d) of this
Section at least one Business Day prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative
Agent shall advise the Lenders of the contents thereof. Each notice delivered
by the Borrower pursuant to this Section shall be irrevocable. Any termination
or reduction of the Commitments shall be permanent. Each reduction of the
Commitments pursuant to paragraph (d) of this Section shall be made ratably
among the Lenders in accordance with their respective Commitments; PROVIDED that
the Borrower may, in its discretion, reduce the Commitments of Lucent Lenders
pursuant to such paragraph (d) without reducing the Commitments of other
Lenders.
Section 2.07. REPAYMENT OF LOANS; EVIDENCE OF DEBT.
(a) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Loan of such Lender as provided in Section 2.08.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
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(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be PRIMA FACIE evidence of the
existence and amounts of the obligations recorded therein; PROVIDED that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it
be evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender such a promissory note payable to the order
of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 9.04) be
represented by one or more promissory notes in such form payable to the order of
the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
Section 2.08. AMORTIZATION OF LOANS.
(a) Subject to adjustment pursuant to paragraph (c) of this
Section, the Borrower shall repay Borrowings on each of the first four
Payment Dates in an aggregate amount equal to [ * ] of the sum of all Loans
made or deemed made hereunder (including amounts previously repaid or
prepaid), on each of the second four Payment Dates in an aggregate amount
equal to [ * ] of the sum of all Loans made or deemed made hereunder
(including amounts previously repaid or prepaid) and on each of the remaining
Payment Dates in an aggregate amount equal to [ * ] of the sum of all Loans
made or deemed made hereunder (including amounts previously repaid or
prepaid).
(b) To the extent not previously paid, all Loans of each Class
shall be due and payable on the Maturity Date with respect to Loans of such
Class.
(c) Any prepayment of a Borrowing of any Class shall be applied
to reduce ratably the subsequent scheduled repayments of the Borrowings of such
Class to be made pursuant to this Section; PROVIDED that any prepayment of a
Borrowing of any Class that is made pursuant to Section 2.09(a) shall be applied
to reduce the subsequent scheduled repayments of the Borrowings of such Class to
be made pursuant to this Section in reverse chronological order or, at the
election of any Lender with respect to any portion of such prepayment payable to
such Lender, to reduce ratably the subsequent scheduled repayments of the
Borrowings of such Class to be made pursuant to this Section.
(d) Prior to any repayment of any Borrowings of any Class
hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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notify the Administrative Agent by telephone (confirmed by telecopy) of such
selection not later than 11:00 a.m., New York City time, three Business Days
before the scheduled date of such repayment; PROVIDED that each repayment of
Borrowings of any Class shall be applied to repay any outstanding ABR Borrowings
of such Class before any other Borrowings of such Class. If the Borrower fails
to make a timely selection of the Borrowing or Borrowings to be repaid, such
repayment shall be applied, first, to repay any outstanding ABR Borrowings of
the applicable Class and, second, to other Borrowings of the applicable Class in
the order of the remaining duration of their respective Interest Periods (the
Borrowing with the shortest remaining Interest Period to be repaid first). Each
repayment of a Borrowing shall be applied, ratably to the Loans included in the
repaid Borrowing. Repayments of Borrowings shall be accompanied by the payment
of accrued interest on the amount thereof.
Section 2.09. PREPAYMENT OF LOANS.
(a) The Borrower shall have the right at any time and from time
to time to prepay any Borrowing in whole or in part subject to the requirements
of this Section without penalty or premium (except as provided in Section 2.14
or 2.15).
(b) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event, the Borrower shall, within six Business Days after such Net
Proceeds are received, prepay Borrowings in an aggregate amount equal to such
Net Proceeds.
(c) Following the end of each fiscal year of the Borrower,
commencing with the fiscal year ending on or after the Effective Date, for
which there is any Excess Cash Flow, the Borrower shall prepay Borrowings in
an aggregate amount equal to [ * ]. Each prepayment pursuant to this
paragraph shall be made on or before the date on which financial statements
are delivered pursuant to Section 5.01 with respect to the fiscal year for
which Excess Cash Flow is being calculated (and in any event within 90 days
after the end of such fiscal year).
(d) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (e) of this Section; PROVIDED that each prepayment of Borrowings of
any Class shall be applied to prepay ABR Borrowings of such Class before any
other Borrowings of such Class. If optional or mandatory prepayment of
Borrowings made at a time when Borrowings of more than one Class are
outstanding, the Borrower shall select Borrowings to be prepaid so that the
aggregate amount of such prepayment is allocated among the Classes pro rata
based on the aggregate principal amount of outstanding Borrowings of each such
Class.
(e) The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a LIBOR Borrowing, not later than 1:00 p.m., New York City time,
three Business Days before the date of prepayment or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date, the principal amount of each
Borrowing or
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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portion thereof to be prepaid and, in the case of a mandatory prepayment, a
reasonably detailed calculation of the amount of such prepayment. Promptly
following receipt of any such notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each partial prepayment of any Borrowing shall
be in an amount that is an integral multiple of $100,000 and not less than
$1,000,000, except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to
the Loans included in the prepaid Borrowing. Prepayments of Borrowings shall be
accompanied by the payment of accrued interest on the amount prepaid.
Section 2.10. FEES.
(a) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender (i) a commitment fee, which shall accrue (at
the rate per annum separately agreed) on the [ * ] of such Lender during
the period from and including the Effective Date to but excluding the date on
which the Tranche 1 Commitments terminate and (ii) a commitment fee, which
shall accrue (at a rate per annum separately agreed) on the [ * ] of such
Lender during the period from and including the [ * ] to but excluding the
date on which the [ * ] terminate. Accrued commitment fees shall be
payable in arrears on each Interest Payment Date and, in the case of
commitment fees in respect of [ * ], on the date on which the [ * ]
terminate and, in the case of commitment fees in respect of the [ * ], on
the date on which the [ * ] terminate, commencing on the first such date to
occur after the Effective Date. All commitment fees shall be computed on the
basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
(b) The Borrower agrees to pay to Lucent, for its own account,
fees in the [ * ].
(c) The Borrower agrees to pay to the Administrative Agent (if
other than Lucent) and the Collateral Agent, for its own account, fees in the
[ * ].
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, (i) to the applicable Agent, (ii) to Lucent, in
the case of fees payable to it, or (iii) to the Administrative Agent, in the
case of commitment fees, for distribution to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
Section 2.11. INTEREST.
(a) The Loans comprising each ABR Borrowing shall bear interest
at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each LIBOR Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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(c) Notwithstanding the foregoing if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration
or otherwise, such overdue amount shall bear interest, after as well as
before judgment, at a rate per annum equal to [ * ] plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) All accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan; PROVIDED that (i) interest
accrued pursuant to paragraph (c) of this Section shall be payable [ * ],
(ii) in the event of any repayment or prepayment of any Loan, accrued interest
on the principal amount of such Loan repaid or prepaid shall be payable on the
date of such repayment or prepayment, or (iii) in the event of any conversion of
any Loan prior to the end of the current Interest Period therefor, accrued
interest on such Loan shall be payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate
or Adjusted LIBO Rate shall be determined in accordance with this Agreement by
the Administrative Agent, and such determination shall be conclusive absent
manifest error.
Section 2.12. ALTERNATE RATE OF INTEREST. If prior to the
commencement of any Interest Period for a LIBOR Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable means do
not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by a majority in
interest of the Lenders participating in such Borrowing that the Adjusted LIBO
Rate for such Interest Period will not adequately and fairly reflect the cost to
such Lenders of making or maintaining their Loans included in such Borrowing for
such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a LIBOR Borrowing shall be ineffective and
(ii) if any Borrowing Request requests a LIBOR Borrowing, such Borrowing shall
be made as an ABR Borrowing.
Section 2.13. INCREASED COSTS.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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extended by, any Lender (except any such reserve requirement reflected
in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any
other condition affecting this Agreement or LIBOR Loans made by such
Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any LIBOR Loan (or of maintaining its obligation
to make any such Loan) or to reduce the amount of any sum received or receivable
by such Lender hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender to a
level below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company, as the case
may be, as specified in paragraph (a) or (b) of this Section and the basis
therefor shall be delivered to the Borrower by the applicable Lender (with a
copy to the Administrative Agent) and shall be conclusive absent manifest error
The Borrower shall pay such Lender the amount shown as due on any such
certificate within 30 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; PROVIDED that the Borrower shall not
be required to compensate a Lender pursuant to this Section for any increased
costs or reductions incurred more than 270 days prior to the date that such
Lender notifies the Borrower of the Change in Law giving rise to such increased
costs or reductions and of such Lender's intention to claim compensation
therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the 270-day period referred
to above shall be extended to include the period of retroactive effect thereof.
Section 2.14. BREAK FUNDING PAYMENTS; PREPAYMENT FEES. In the
event of (i) the payment of any principal of any LIBOR Loan other than on the
last day of an Interest Period applicable thereto (including as a result of an
Event of Default), (ii) the conversion of any LIBOR Loan other than on the last
day of the Interest Period applicable thereto, (iii) the failure to borrow,
convert, continue or prepay any Loan on the date specified in any notice
delivered pursuant hereto, or (iv) the assignment of any LIBOR Loan other than
on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section
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2.17, then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event. In the case of a LIBOR Loan,
such loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this paragraph shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
Section 2.15. TAXES.
(a) Any and all payments by or on account of any obligation of
the Borrower hereunder or under any other Loan Document shall be made free and
clear of and without deduction for any Indemnified Taxes or Other Taxes;
PROVIDED that if the Borrower shall be required to deduct any Indemnified Taxes
or Other Taxes from such payments, then (i) the sum payable shall be increased
as necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent or Lender receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and
each Lender, within 10 days after written demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender on or with respect to any payment by or on account of any obligation of
the Borrower hereunder or under any other Loan Document (including Indemnified
Taxes or Other Taxes imposed or asserted on or attributable to amounts payable
under this Section) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment
delivered to the Borrower by a Lender, or by the Administrative Agent on its own
behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
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(e) Each Foreign Lender shall deliver to the Borrower (with a
copy to the Administrative Agent) two copies of either United States Internal
Revenue Service Form 1001 or Form 4224, or, in the case of a Foreign Lender
claiming exemption from U.S. Federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of "portfolio interest", a Form W-8,
or any subsequent versions thereof or successors thereto (and, if such Foreign
Lender delivers a Form W-8, a certificate representing that such Foreign Lender
is not a bank for purposes of Section 881(c) of the Code, is not a ten percent
(10%) shareholder of the Borrower (within the meaning of Section 871(h)(3)(B) of
the Code) and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Foreign Lender claiming complete exemption from, or
reduced rate of, U.S. Federal withholding tax on payments by the Borrower under
this Agreement or any other Loan Document. Such forms shall be delivered by
each Foreign Lender on or before the date it becomes a party to this Agreement
or designates a new lending office. In addition, each Foreign Lender shall
deliver such forms promptly upon the obsolescence, expiration or invalidity of
any form previously delivered by such Foreign Lender. Notwithstanding any other
provision of this Section 2.15, a Foreign Lender shall not be required to
deliver any form pursuant to this Section 2.15 that such Foreign Lender is not
legally able to deliver.
(f) If the Administrative Agent or a Lender determines, in its
sole discretion, that it has received a refund of any Taxes as to which it has
been indemnified by the Borrower pursuant to this Section 2.15, it shall pay
over such refund to the Borrower (but only to the extent of indemnity payments
made by the Borrower under this Section 2.15 with respect to the Taxes giving
rise to such refund), net of all reasonable out-of-pocket expenses of the
Administrative Agent or such Lender and without interest (other than any
interest paid by the relevant Governmental Authority with respect to such
refund); PROVIDED, HOWEVER, that the Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to the
Borrower (plus any penalties, interest or other charges imposed by the relevant
Governmental Authority) to the Administrative Agent or such Lender in the event
the Administrative Agent or such Lender is required to repay such refund to such
Governmental Authority. Nothing contained in this Section 2.15 shall require
the Administrative Agent or any Lender to make available its tax returns (or any
other information relating to its Taxes which it deems confidential) to the
Borrower or any other Person.
Section 2.16. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS.
(a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest or
fees, or of amounts payable under Sections 2.13, 2.14 or 2.15, or otherwise)
prior to 12:00 noon, New York City time, on the date when due, in immediately
available funds, without set-off or counterclaim. Any amounts received after
such time on any date may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the
Administrative Agent at The Chase Manhattan Bank, New York, New York, ABA no.
021000021, account no. 9101449099, phone no. (212) 552-2222 (or such other
account as the Administrative Agent shall from time to time specify by notice),
except that payments pursuant to Sections 2.10(b), 2.10(c), 2.13, 2.14, 2.15 and
9.03 shall be made directly to the Persons entitled thereto and payments
pursuant to
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other Loan Documents shall be made to the Persons specified therein. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment under any Loan Document shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied (i) first,
towards payment of interest and fees then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties, and (ii) second, towards payment of principal then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; PROVIDED that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder that the Borrower
will not make such payment, the Administrative Agent may assume that the
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders the amount due. In
such event, if the Borrower has not in fact made such payment, then each of the
Lenders severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at
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the greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.
(e) Without limiting the generality of paragraph (a) above, the
Borrower's obligations to make each payment required to be made by it hereunder
or under any other Loan Document (whether of principal, interest, fees or
otherwise) shall be absolute and unconditional and shall not be subject to any
delay, reduction, set-off, counterclaim, defense or recoupment for any reason,
including any failure of any equipment or other assets acquired pursuant to the
Supply Agreement or any part thereof, or any dispute with, breach of
representation or warranty by or claim against any supplier, manufacturer,
installer, vendor or distributor, including Lucent. The provisions of this
paragraph shall not be construed as a waiver by the Parent or the Borrower of
any rights they may have under the Supply Agreement.
Section 2.17. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.
(a) If any Lender requests compensation under Section 2.13, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
then, if requested by the Borrower, such Lender shall use reasonable efforts to
designate a different lending office for funding or booking its Loans hereunder
or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the reasonable judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment made at the Borrower's request.
(b) If any Lender requests compensation under Section 2.13, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
then the Borrower may, at its sole expense and effort, upon notice to such
Lender and the Administrative Agent, require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained
in Section 9.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, and
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the Parent and the Borrower represents and warrants to the
Lenders that:
Section 3.01. ORGANIZATION; POWERS. Each of the Parent, the
Borrower and the Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite company or corporate, as the case may be, power and authority to carry
on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
Section 3.02. AUTHORIZATION; ENFORCEABILITY. The Transactions to
be entered into by each Loan Party are within such Loan Party's corporate or
company, as the case may be, powers and have been duly authorized by all
necessary corporate or company, as the case may be, and, if required,
stockholder or member, as the case may be, action. This Agreement has been duly
executed and delivered by each of the Parent and the Borrower and constitutes,
and each other Loan Document to which any Loan Party is to be a party, when
executed and delivered by such Loan Party, will constitute, a legal, valid and
binding obligation of the Parent, the Borrower or such Loan Party (as the case
may be), enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
Section 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect and except filings
necessary to perfect Liens created under the Security Documents, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of any Loan Party or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument evidencing or governing any Material Indebtedness
or any other material indenture, agreement or other instrument binding upon any
Loan Party or its assets, or give rise to a right thereunder to require any
payment to be made by any Loan Party, and (d) will not result in the creation or
imposition of any Lien on any asset of any Loan Party, except Liens created
under the Security Documents.
Section 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) The Parent has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders equity and
cash flows as of and for the fiscal year ended December 31, 1998, and its
consolidated balance sheet and statements of income, stockholders equity and
cash flows as of and for the fiscal quarter ended March 31, 1999, each certified
by a Financial Officer of the Parent. Such financial statements present fairly,
in all material respects, the financial position and results of operations and
cash flows of the Parent and its consolidated subsidiaries as of such dates and
for such periods in accordance
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with GAAP, subject to year end audit adjustments. As of the date hereof, neither
the Parent nor the Borrower has liabilities in excess of $75,000 except as
disclosed on Schedule 3.04(a).
(b) Since December 31, 1998, there has been no material adverse
change in the business, condition (financial or otherwise), operations,
performance or properties of the Parent or the Borrower and the Subsidiaries,
taken as a whole.
Section 3.05. PROPERTIES AND LICENSES.
(a) Each of the Loan Parties has good title to, or valid
leasehold interests in, all the real and personal property material to its
business, except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(b) Each of the Loan Parties owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Loan Parties does not
infringe upon the rights of any other Person, except for any such infringements
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
(c) The certificates, licenses and approvals identified on
Schedule 3.05 (the "Licenses") are all the certificates, licenses and approvals
that have been issued or provided to the Parent or the Borrower by any
Governmental Authority having jurisdiction over the telecommunications business,
and each such License is in full force and effect and has not been revoked,
cancelled, suspended or modified in an adverse way. Schedule 3.05 also
accurately identifies and describes all applications ("Pending Applications")
that have been made by the Parent or the Borrower to obtain any certificates,
licenses or approvals from any Governmental Authority having jurisdiction over
the telecommunications business. The Parent and the Borrower are not aware of
any reason that any Governmental Authority would not approve the assignment to
the Borrower of any License owned by the Parent or the assignment or the
modification of any Pending Application made by the Parent so as to be made on
behalf of the Borrower or the assignment to the Borrower of any certificates,
licenses or approvals for which Pending Applications have been made. The
Parent, the Borrower and the Subsidiaries have all licenses and permits that are
material to the business of the Parent, the Borrower and the Subsidiaries except
for the License with respect to New Mexico, which may or may not be material.
Each license or permit that is material to the business of the Parent, the
Borrower and the Subsidiaries, is valid and in full force and effect, and the
Parent, the Borrower and the Subsidiaries are in compliance in all material
respects with the terms and conditions thereof.
Section 3.06. LITIGATION AND ENVIRONMENTAL MATTERS.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Parent or the Borrower, threatened against or affecting the Parent, the Borrower
or any of its Subsidiaries (i) as to which there is a reasonable possibility of
an adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
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Effect (other than the Disclosed Matters) or (ii) that involve any of the Loan
Documents or the Transactions.
(b) Except with respect to any other matters that, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect, none of the Parent, the Borrower or any of its Subsidiaries (i)
has failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
Section 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of the
Parent, the Borrower and its Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing. True and correct copies of
all material agreements to which the Parent, the Borrower or any Subsidiary is a
party or by which any of them or their properties is bound have been provided to
special counsel to Lucent.
Section 3.08. INVESTMENT AND HOLDING COMPANY STATUS. None of the
Loan Parties is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (b) a "holding company"
as defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
Section 3.09. TAXES. Each of the Loan Parties has timely filed or
caused to be filed all Tax returns and reports required to have been filed and
has paid or caused to be paid all Taxes required to have been paid by it, except
(a) Taxes that are being contested in good faith by appropriate proceedings and
for which the applicable Loan Party has set aside on its books adequate reserves
or (b) the filing of local Tax returns and reports to the extent that the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
Section 3.10. ERISA. Each Plan has been administered in
compliance with all applicable laws except for such instances of noncompliance
as have not resulted in and could not reasonably be expected to result in a
Material Adverse Effect. No ERISA Event has occurred or is reasonably expected
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed the fair
market value of the assets of such Plan, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No.
87) did not, as of the date of the most recent financial statements reflecting
such amounts, exceed the fair market value of the assets of all such underfunded
Plans.
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Section 3.11. DISCLOSURE. The Parent and the Borrower have
disclosed to the Lenders all agreements, instruments and corporate or other
restrictions to which any of the Loan Parties is subject that, individually or
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect. None of the reports, financial statements, certificates or other
information furnished by or on behalf of any Loan Party to the Administrative
Agent or any Lender in connection with the negotiation of this Agreement or any
other Loan Document or delivered hereunder or thereunder (as modified or
supplemented by other information so furnished, including the Parent's publicly
available filings with the Securities and Exchange Commission) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, taken as a whole, in the light of the circumstances
under which they were made, not misleading; PROVIDED that, with respect to
projected financial information, the Parent and the Borrower represent only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time. The Borrower has furnished to the Administrative
Agent a true and correct copy of the Administrative Agreement, and such
agreement is in full force and effect on the date hereof.
Section 3.12. SUBSIDIARIES. Schedule 3.12 sets forth as of the
date of this Agreement the name of, and the ownership interest of the Borrower
in, each Subsidiary of the Borrower.
Section 3.13. INSURANCE. Schedule 3.13 sets forth a description
of all insurance maintained by or on behalf of the Borrower and its Subsidiaries
as of the date of this Agreement. As of the date of this Agreement, all
premiums in respect of such insurance have been paid.
Section 3.14. LABOR MATTERS. As of the date hereof, there are no
strikes, lockouts or slowdowns against any Loan Party pending or, to the
knowledge of the Parent or the Borrower, threatened. The hours worked by and
payments made to employees of the Loan Parties have not been in violation of the
Fair Labor Standards Act or any other applicable Federal, state, local or
foreign law dealing with such matters. All payments due from any Loan Party, or
for which any claim may be made against any Loan Party, on account of wages and
employee health and welfare insurance and other benefits, have been paid or
accrued as a liability on the books of the applicable Loan Party. The
consummation of the Transactions will not give rise to any right of termination
or right of renegotiation on the part of any union under any collective
bargaining agreement to which any Loan Party is bound.
Section 3.15. SUPPLY AGREEMENT. The Supply Agreement is in full
force and effect and except as disclosed in Schedule 3.15 no payment default or
any other default that (with or without notice or the passage of time or both)
would permit Lucent to terminate the Supply Agreement has occurred and is
continuing under the Supply Agreement. The Borrower has not terminated, nor
taken any action which could result in the termination of, the Supply Agreement.
Section 3.16. SECURITY DOCUMENTS. The representations and
warranties in each Security Document are true and correct.
Section 3.17. YEAR 2000 READINESS. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (a) the
computer systems of the Parent, the
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Borrower and the Subsidiaries and (b) equipment of the Parent, the Borrower and
the Subsidiaries containing embedded microchips and the testing of all such
systems and equipment, as so reprogrammed, will be completed by November 30,
1999, except to the extent that failure to do so would not have a Material
Adverse Effect. The cost to the Parent, the Borrower and the Subsidiaries of
such reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to the Parent, the Borrower and the Subsidiaries (including
reprogramming errors) could not reasonably be expected to have a Material
Adverse Effect. The Parent, the Borrower and the Subsidiaries have used
commercially reasonable efforts to identify all possible failures of the systems
or equipment of their material suppliers, vendors and customers and to assess
the impact of any such failures on the business, condition (financial or
otherwise), operations, performance or properties of the Parent, the Borrower
and the Subsidiaries .
Section 3.18. CAPITALIZATION.
(a) There are no shareholders agreements, voting trusts,
proxies or other agreements, commitments or understandings of any character to
which the Parent, the Borrower or any of its Subsidiaries is a party or by which
the Parent, the Borrower or any of its Subsidiaries is bound with respect to the
voting of any shares of capital stock of the Parent or any of its Subsidiaries.
(b) All securities issued by the Parent, the Borrower or any of
its Subsidiaries have been offered, issued, sold and delivered, in compliance
with, or pursuant to exemptions from, the Securities Act, and the rules and
regulations of the Securities and Exchange Commission thereunder, and all other
laws of any jurisdiction, and the rules and regulations of any Governmental
Authority, applicable to the offering, issuance, sale or delivery of securities
Neither the Parent nor any of its Subsidiaries is required to file, nor has it
filed, any information with the Securities and Exchange Commission pursuant to
the Securities Exchange Act. Neither the Parent, the Borrower nor any of its
Subsidiaries has registered any securities under the Securities Act. No holder
of securities of the Parent, the Borrower or any of its Subsidiaries has any
contractual right to require the Parent, the Borrower or any of its Subsidiaries
to include any such securities in any registration statement under the
Securities Act.
ARTICLE IV
CONDITIONS
Section 4.01. EFFECTIVE DATE. The obligations of the Lenders to
make the initial Loans hereunder shall not become effective until the date on
which each of the following conditions is satisfied (or waived in accordance
with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this Agreement
signed on behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart of
this Agreement.
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(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Agents and the Lenders, dated the Effective
Date and addressing such matters relating to the Loan Parties, the Loan
Documents and the Transactions as the Administrative Agent shall reasonably
request, in each case in form and substance reasonably satisfactory to the
Administrative Agent) of each of (i) Cooley Godward LLP, counsel for the Parent
and the Borrower, (ii) Kelley Drye & Warren, LLP, special communications counsel
to the Parent and the Borrower, and (iii) Orrick, Herrington & Sutcliffe LLP,
special counsel for Lucent. The Parent and the Borrower hereby request their
counsel referred to in clauses (i) and (ii) of this paragraph to deliver such
opinions.
(c) The Administrative Agent shall have received such documents
and certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of the Loan
Parties, the authorization of the Transactions and any other legal matters
relating to the Loan Parties, the Loan Documents or the Transactions, all in
form and substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate,
dated the Effective Date and signed by the Chief Executive Officer, President, a
Vice President or a Financial Officer of each of the Parent and the Borrower,
confirming compliance with the conditions set forth in paragraphs (a), (b) and
(c) of Section 4.02.
(e) The Agents and Lucent shall be satisfied that all fees and
other amounts due and payable to them hereunder on or prior to the Effective
Date, including, to the extent invoiced, reimbursement or payment of all
expenses required to be reimbursed or paid by the Borrower hereunder or under
any other Loan Document, have been paid or will be paid from the proceeds of a
Borrowing to be made on the Effective Date.
(f) The Lenders shall be reasonably satisfied with the
corporate and legal structure and capitalization of the Parent, the Borrower and
the Subsidiaries, including the charter and by-laws of the Parent, the Borrower
and each Subsidiary and each agreement or instrument evidencing Indebtedness.
(g) The Administrative Agent shall have received (i)
counterparts of the Guarantee Agreement signed on behalf of the Parent and each
Subsidiary, and (ii) counterparts of the Indemnity and Contribution Agreement
signed on behalf of each Loan Party.
(h) The Collateral Agent shall have received (i) counterparts
of the Security Documents (other than the Pledge Agreement (Borrower))signed on
behalf of the Loan Party that is a party thereto and (ii) evidence satisfactory
to the Required Lenders that all documents and instruments, including Uniform
Commercial Code financing statements, required by law or reasonably requested by
the Collateral Agent to be filed, registered or recorded to create or perfect
the Liens intended to be created under the Security Documents, and to protect
the respective ownership interests of the Parent, the Borrower and the
Subsidiaries in (and the Liens of the Security Documents on) all Collateral,
have been so filed, registered or recorded.
(i) The Collateral Agent shall have received a completed
Perfection Certificate from each of the Borrower and the Parent, dated the
Effective Date and signed by a
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Financial Officer of the Borrower and the Parent, respectively, together with
all attachments contemplated thereby, including (i) the results of a search of
the Uniform Commercial Code (or equivalent) filings made with respect to the
Borrower and the Parent in the jurisdictions contemplated by the Perfection
Certificate and (ii) copies of the financing statements (or similar documents)
disclosed by such search and evidence reasonably satisfactory to the Collateral
Agent that the Liens indicated by such financing statements (or similar
documents) are permitted by Section 6.02 or have been released.
(j) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in effect and
that the Collateral Agent has been named as an additional insured and loss payee
under all insurance policies to be maintained with respect to the properties of
the Borrower constituting the Collateral.
(k) The Lenders shall have received the most recent Business
Plan, including financial projections, and there shall have been no material
adverse changes in the Business Plan compared to the information disclosed to
Lucent prior to the date of execution of this Agreement.
(l) The Lenders (i) shall have been given access to the
management, records, books of account, contracts and properties of the Loan
Parties and shall have received such financial, business and other information
regarding the Loan Parties as the Lenders shall have reasonably requested and
(ii) shall have completed their due diligence review of the Loan Parties and
shall be reasonably satisfied with the results of such review.
(m) The Administrative Agent shall have received evidence
reasonably satisfactory to it that the Subsidiaries hold all material
governmental approvals reasonably necessary to conduct their respective
businesses.
(n) The Parent shall have received cash equity contributions of
at least $15,000,000 from various investors and the Borrower shall have received
cash equity contributions of at least $15,000,000 from the Parent; PROVIDED,
HOWEVER, that the Parent may pay certain construction and engineering costs on
behalf of the Borrower for an aggregate amount not exceeding $1,416,559.50 in
lieu of contributing cash in an equal amount; PROVIDED, FURTHER, the Parent
shall have delivered a certificate of one of its Financial Officers to the
Administrative Agent certifying that any such costs were incurred in an arm's
length transaction and that the Borrower otherwise would have been required to
pay such costs in order to implement the Business Plan.
(o) Each holder of an equity interest in the Parent exceeding
5% of outstanding equity shall be reasonably acceptable to the Lenders.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
York City time, on August 15, 1999 (and, in the event such conditions are not so
satisfied or waived, the Commitments shall terminate at such time).
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Section 4.02. EACH BORROWING. The obligation of each Lender to
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) At the time of and immediately after giving effect to such
Borrowing, the representations and warranties of the Loan Parties set forth in
the Loan Documents shall be true and correct in all respects (or, in the case of
any representation or warranty that is not qualified as to materiality, in all
material respects) on and as of the date of such Borrowing (or, in the case of
any representation and warranty that expressly relates to an earlier date, on
and as of such earlier date).
(b) At the time of and immediately after giving effect to such
Borrowing no Default shall have occurred and be continuing.
(c) At the time of and immediately after giving effect to such
Borrowing, the Supply Agreement shall be in full force and effect, no payment
default shall have occurred and be continuing and no other default that (with or
without notice or the passage of time or both) would permit Lucent to terminate
the Supply Agreement and with respect to which Lucent has notified the Borrower
shall have occurred and be continuing under the Supply Agreement.
(d) With respect to any Tranche 2 Loans, at the time of and
immediately after giving effect to such Borrowing, the aggregate amount of
all Tranche 2 Loans outstanding shall be equal to or less than [ * ] of the
aggregate amount of paid in capital and Subordinated Indebtedness in excess
of $[ * ].
(e) The Lucent Product of which the Purchase Price is to be
paid with the proceeds of such Borrowing is intended to be used in a Permitted
Jurisdiction.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a),
(b), (c), (d) and (e) of this Section. For purposes of this Section 4.02, the
condition set forth in Section 4.02(a), to the extent that it relates to the
representation of the Parent and the Borrower that no default (excluding payment
defaults) that (with or without notice or the passage of time or both) would
permit Lucent to terminate the Supply Agreement has occurred and is continuing,
shall not be deemed unsatisfied at the time of any Borrowing unless Lucent has
notified the Borrower that such a default has occurred.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each of the Parent and the Borrower covenants and agrees with
the Lenders that:
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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Section 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Parent and the Borrower will furnish to the Administrative Agent:
(a) within 120 days after the end of each fiscal year of the
Parent, the audited consolidated balance sheet of the Parent and its
consolidated subsidiaries and related statements of operations, stockholders'
equity and cash flows as of the end of and for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, all reported
on by Arthur Andersen LLP or other independent public accountants of recognized
national standing (without a "going concern" or like qualification or exception
and without any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of the
Parent and its consolidated subsidiaries on a consolidated basis in accordance
with GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Parent and its consolidated
subsidiaries, the consolidated balance sheet of the Parent and its consolidated
subsidiaries and related statements of operations and cash flows as of the end
of and for such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the corresponding
period or periods of (or, in the case of the balance sheet, as of the end of)
the previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of the Parent and its consolidated subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(c) within 120 days after the end of each fiscal year of the
Borrower, the consolidated balance sheet of the Borrower and its consolidated
Subsidiaries and related statements of operations, stockholders' equity and cash
flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;
(d) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower and its consolidated
Subsidiaries, the consolidated balance sheet of the Borrower and its
consolidated Subsidiaries and related statements of operations and cash flows as
of the end of and for such fiscal quarter and the then elapsed portion of the
fiscal year, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;
(e) concurrently with any delivery of the Parent's and
Borrower's financial statements under clause (a) , (b), (c) and (d) above, a
certificate of a Financial Officer of each of the Parent and the Borrower (i)
certifying as to whether a Default has occurred and, if a Default
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has occurred, specifying the details thereof and any action taken or proposed to
be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Sections 6.11 through 6.20 and (iii)
stating whether any change in GAAP or in the application thereof that materially
affects the Parent's or the Borrower's financial statements accompanying such
certificate (it being understood that any change that would affect compliance
with any covenant set forth herein or the Applicable Rate shall be considered
material) has occurred since the date of the Parent's or the Borrower's audited
financial statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate (it being understood that such certificate may
also satisfy the requirements of Section 5.03(b) and (c), but any such
certificate intended to satisfy both those requirements and the requirements of
this clause (e) shall be delivered to both the Administrative Agent and the
Collateral Agent);
(f) concurrently with any delivery of financial statements
under clause (a) or (c) above, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained knowledge
during the course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by accounting
rules or guidelines);
(g) promptly after the same become available but in any event
within 120 days after the end of each fiscal year of the Borrower, an annual
operating and cash flow budget in reasonable detail for the current fiscal year
and updated financial projections through the fiscal year during which the
Maturity Date is scheduled to occur;
(h) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials filed by
the Parent, the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or
financial information or other material information distributed by the Parent or
the Borrower to either of their shareholders generally, as the case may be; and
(i) promptly following any request therefor, such other
information regarding the operations, business affairs and financial condition
of the Parent, the Borrower or any Subsidiary, or compliance with the terms of
any Loan Document, as either Agent or any Lender may reasonably request.
Section 5.02. NOTICES OF MATERIAL EVENTS.
(a) The Borrower will furnish to the Administrative Agent, the
Collateral Agent and each Lender written notice of the following promptly upon
obtaining knowledge thereof:
(i) the occurrence of any Default;
(ii) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against
or affecting the Parent, the Borrower or any Affiliate thereof that, if
adversely determined, could reasonably be expected to result in a
Material Adverse Effect; and
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(iii) any other development that results in, or could reasonably
be expected to result in, a Material Adverse Effect.
(b) The Borrower will furnish to the Administrative Agent and
the Collateral Agent written notice of the occurrence of any Prepayment Event
promptly after the occurrence of such event.
(c) Each notice delivered under this Section shall be
accompanied by a statement of a Financial Officer or other executive officer of
the Borrower setting forth the details of the event or development requiring
such notice and any action taken or proposed to be taken with respect thereto.
Section 5.03. INFORMATION REGARDING COLLATERAL.
(a) The Borrower will furnish to the Collateral Agent prompt
written notice of any change (i) in corporate name of the Borrower or any
Subsidiary or in any trade name used to identify any such Person in the conduct
of its business or in the ownership of its properties, (ii) in the location of
the chief executive office of the Borrower or any Subsidiary, its principal
place of business or any asset constituting Collateral (other than the
installation of any asset constituting Collateral in a jurisdiction in which all
Uniform Commercial Code financing statements (including fixture filings, if
applicable) and other appropriate filings, recordings or registrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in such jurisdiction to the
extent necessary to perfect the security interests under the Security Documents,
(iii) in the identity or corporate structure of the Borrower or any Subsidiary
or (iv) in the Federal Taxpayer Identification Number of the Borrower or any
Subsidiary. The Borrower agrees not to effect or permit any change referred to
in the preceding sentence unless all filings have been made under the Uniform
Commercial Code or otherwise that are required in order for the Collateral Agent
to continue at all times following such change to have a valid, legal and
perfected security interest in all the Collateral.
(b) Each year, at the time of delivery of annual financial
statements for the Borrower with respect to the preceding fiscal year pursuant
to clause (c) of Section 5.01, the Borrower will and will cause each Subsidiary
to deliver to the Collateral Agent a certificate of a Financial Officer of the
Borrower or such Subsidiary (i) setting forth the information required pursuant
to Sections 1 and 2 of the Perfection Certificate with respect to the Borrower
or such Subsidiary or confirming that there has been no change in such
information since the date of the Perfection Certificate delivered on the
Effective Date or the date of the most recent certificate delivered pursuant to
this Section and (ii) certifying that all Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations, including all refilings, rerecordings and
reregistrations, containing a description of the Collateral have been filed of
record in each governmental, municipal or other appropriate office in each
jurisdiction identified pursuant to clause (i) above to the extent necessary to
protect and perfect the security interests under the Security Documents for a
period of not less than 18 months after the date of such certificate (except as
noted therein with respect to any continuation statements to be filed within
such period).
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(c) Each year, at the time of delivery of annual financial
statements for the Parent with respect to the preceding fiscal year pursuant to
clause (a) of Section 5.01, the Parent will deliver to the Collateral Agent a
certificate of a Financial Officer of the Parent (i) setting forth the
information required pursuant to Sections 1 and 2 of the Perfection Certificate
with respect to the Parent (and following the Partial Termination Date, only the
information required pursuant to Sections 1 and 2(a), (b) and (c) of the
Perfection Certificate of the Parent) or confirming that there has been no
change in such information since the date of the Perfection Certificate
delivered on the Effective Date or the date of the most recent certificate
delivered pursuant to this Section and (ii) certifying that all Uniform
Commercial Code financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations, including all
refilings, rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (i) above
to the extent necessary to protect and perfect the security interests under the
Security Documents for a period of not less than 18 months after the date of
such certificate (except as noted therein with respect to any continuation
statements to be filed within such period).
Section 5.04. EXISTENCE; CONDUCT OF BUSINESS. Each of the Parent
and the Borrower will, and will cause each of the Subsidiaries to, do or cause
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of the business of the Parent, the Borrower
and the Subsidiaries, taken as a whole; PROVIDED that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 6.03.
Section 5.05. PAYMENT OF OBLIGATIONS. Each of the Parent and the
Borrower will, and will cause each of the Subsidiaries to, pay its Indebtedness
and other obligations, including Tax liabilities, before the same shall become
delinquent or in default, except where (i) the validity or amount thereof is
being contested in good faith by appropriate proceedings, (ii) the Parent, the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP, (iii) such contest effectively suspends
collection of the contested obligation and the enforcement of any Lien securing
such obligation and (iv) the failure to make payment pending the resolution of
such contest could not reasonably be expected to result in a Material Adverse
Effect.
Section 5.06. MAINTENANCE OF PROPERTIES. Each of the Parent and
the Borrower will, and will cause each of the Subsidiaries to, keep and maintain
all Collateral, and all other property material to the conduct of the business
of the Parent, the Borrower and the Subsidiaries, taken as a whole, in good
working order and condition, ordinary wear and tear excepted, PROVIDED, that
this Section 5.06 shall not prevent sales permitted under Sections 6.03 and
6.04.
Section 5.07. INSURANCE.
(a) Each of the Parent and the Borrower will, and will cause
each of the Subsidiaries to, maintain, with financially sound and reputable
insurance companies with AM Best's rating of A minus (A-) or better, All-Risk
property insurance for the full replacement value of all property and other
insurance, including public liability insurance against claims for personal
injury, death or property damage occurring upon, about or in connection with the
use of
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any properties owned, occupied or controlled by it as well as such other
insurance as may be required by law.
(b) All policies of All-Risk property insurance maintained by
or for the benefit of the Borrower with respect to the Collateral shall be (i)
maintained in an amount not less than the full replacement value of all property
thereof, with deductibles or self insured retention not exceeding $75,000, and
(ii) endorsed or otherwise amended to include a "standard" or "New York"
lender's loss payable endorsement, in favor of and satisfactory to the
Collateral Agent, which endorsement shall provide that the insurance carrier
shall pay all proceeds otherwise payable to any Loan Party under such policies
directly to the Collateral Agent. All such policies also shall provide that
none of the Borrower, the Administrative Agent, the Collateral Agent nor any
other party shall be a coinsurer thereunder and shall contain a "Replacement
Cost Endorsement", without any deduction for depreciation, "mortgagee's
interest"/"breach of warranty coverage" and such other provisions as the
Administrative Agent or the Collateral Agent may reasonably require from time to
time to protect the interests of the Lenders. Each such policy also shall
provide that it shall not be canceled (i) by reason of nonpayment of premium
except upon not less than 10 days' prior written notice thereof by the insurer
to the Administrative Agent and the Collateral Agent (giving the Administrative
Agent and the Collateral Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than 30 days' prior
written notice thereof by the insurer to the Administrative Agent and the
Collateral Agent. The Borrower shall deliver to the Administrative Agent and
the Collateral Agent, upon not less than 30 days' prior written notice to the
cancellation, modification or nonrenewal of any such policy of insurance, a copy
of a renewal or replacement policy (or other evidence of renewal of a policy
previously delivered to the Administrative Agent and the Collateral Agent)
together with evidence satisfactory to the Administrative Agent and the
Collateral Agent of payment of the premium therefor.
(c) The Borrower shall notify the Administrative Agent and the
Collateral Agent immediately whenever any separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section is taken out by any Loan Party, and shall promptly deliver to the
Administrative Agent and the Collateral Agent a duplicate original copy of such
policy or policies.
Section 5.08. BOOKS AND RECORDS; INSPECTION RIGHTS. Each of the
Parent and the Borrower will, and will cause each of the Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all material dealings and transactions in relation to their business and
activities. Each of the Parent and the Borrower will, and will cause each of
the Subsidiaries to, permit any representatives designated by either Agent or
any Lender, at such Agent's or Lender's expense (unless an Event of Default has
occurred and is continuing, in which case at Borrower's expense) upon reasonable
prior notice, to visit and inspect its properties, to examine and make extracts
from its books and records, and to discuss its affairs, finances and condition
with its officers and independent accountants, all at such reasonable times and
as often as reasonably requested. Any such inspection shall be subject to the
confidentiality restrictions set forth in Section 9.12.
Section 5.09. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of the
Parent and the Borrower will, and will cause each of the Subsidiaries to, comply
with all laws, rules,
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regulations and orders of any Governmental Authority (including ERISA and all
Environmental Laws) applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
Section 5.10. USE OF PROCEEDS. The proceeds of the Loans will be
used solely to make payments of the Purchase Price and Permitted Expenses
including up to $200,000 to cover the value of equipment shipped to the Borrower
prior to the date of this Agreement and which will be included under the Supply
Agreement.
Section 5.11. FURTHER ASSURANCES. Each of the Parent and the
Borrower will, and will cause each other Loan Party to, execute any and all
further documents, financing statements, agreements and instruments, and take
all such further actions (including the filing and recording of financing
statements, fixture filings and other documents), which may be required under
any applicable law, or which either Agent or the Required Lenders may reasonably
request, to effectuate the transactions contemplated by the Loan Documents or to
grant, preserve, protect or perfect the Liens created or intended to be created
by the Security Documents or the validity or priority of any such Lien, all at
the expense of the Borrower. The Borrower also agrees to provide to either
Agent, upon request, evidence reasonably satisfactory to such Agent as to the
perfection and priority of the Liens created or intended to be created by the
Security Documents.
Section 5.12. CASUALTY AND CONDEMNATION.
(a) The Borrower will furnish to the Agents and the Lenders
prompt notice of any casualty or other damage to any portion of the Collateral
having a value in excess of $50,000 or the commencement of any action or
proceeding for the taking of any Collateral or any part thereof or interest
therein under power of eminent domain or by condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section
results in Net Proceeds (whether in the form of insurance proceeds, condemnation
award or otherwise), the Collateral Agent is authorized to collect such Net
Proceeds and, if received by the Parent, the Borrower or any other Subsidiary,
such Net Proceeds shall be paid over to the Collateral Agent. All such Net
Proceeds retained by or paid over to the Collateral Agent shall be held by the
Collateral Agent and released from time to time to pay the costs of repairing,
restoring or replacing the affected property in accordance with the terms of
this Agreement and the applicable provisions of the Security Documents, subject
to the provisions of the Security Documents regarding application of such Net
Proceeds during a Default.
(c) If any Net Proceeds retained by or paid over to the
Collateral Agent as provided above continue to be held by the Collateral Agent
on the date that any prepayment is due pursuant to Section 2.09(b) in respect of
the event resulting in such Net Proceeds, then such Net Proceeds shall be
applied to prepay Borrowings as provided in Section 2.09(b).
Section 5.13. INTEREST RATE PROTECTION. If at any time, the
Borrower or any Subsidiary shall agree to enter into or maintain or shall enter
into any Hedging Agreement in order to limit the interest cost risk to the
Borrower and Subsidiaries related to any Indebtedness
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other than the Loans, the Borrower will from time to time thereafter enter into
and maintain in effect one or more Hedging Agreements with respect to the
Indebtedness represented by the Loans reasonably satisfactory to the Required
Lenders on terms and conditions comparable to such other Hedging Agreement. The
Borrower agrees upon request to consult from time to time with the
Administrative Agent regarding the advisability of entering into Hedging
Agreements.
Section 5.14. EXECUTION OF PLEDGE AGREEMENT (BORROWER); SUBSIDIARY
GUARANTORS; ADDITIONAL SECURITY DOCUMENTS.
(a) Upon the formation the first Subsidiary to be formed or the
acquisition by the Borrower of a Person that as a result becomes the first
Subsidiary, the Borrower will (i) deliver an executed counterpart of the Pledge
Agreement (Borrower) signed on behalf of the Borrower to the Collateral Agent,
(ii) cause legal counsel to deliver opinions as to the enforceability thereof,
the creation and perfection of Liens thereunder and such other matters as the
Collateral Agent and the Required Lenders reasonably may request, and (iii) take
all other actions as the Collateral Agent or the Required Lenders reasonably may
require in connection therewith.
(b) If any Subsidiary of the Borrower is formed or acquired
after the date hereof, the Borrower will notify the Administrative Agent and the
Lenders thereof and will cause such Subsidiary to become a party to the
Guarantee Agreement and the Indemnity and Contribution Agreement promptly, and
in any event within five Business Days, thereafter. At the time of such
formation or acquisition, the Borrower (i) will cause such Subsidiary to enter
into a pledge agreement, security agreement or other additional Security
Documents in favor of the Collateral Agent, in form and substance satisfactory
to the Required Lenders, to obtain all necessary consents and to take all other
actions necessary or appropriate to create and perfect Liens upon the assets of
such Subsidiary, (ii) will cause legal counsel to deliver opinions as to the
enforceability of such Security Documents, the creation and perfection of Liens
thereunder and such other matters as the Collateral Agent and the Required
Lenders reasonably may request, (iii) cause any Persons other than the Borrower
that owns or will acquire any equity interest in such Subsidiary to enter into a
pledge agreement in favor of the Collateral Agent, in form and substance
satisfactory to the Required Lenders, to obtain all necessary consents and to
take all other actions necessary or appropriate to create and perfect Liens upon
such equity interest, and (iv) will take, or cause such Person and its officers,
to take such other actions as the Collateral Agent or the Required Lenders
reasonably may require in connection therewith.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees payable hereunder have been paid in
full, each of the Parent and the Borrower covenants and agrees with the Lenders
that:
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Section 6.01. Indebtedness. The Borrower and until the Partial
Termination Date, the Parent will not, and neither the Parent nor the Borrower
will permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) subject to Section 6.04, Indebtedness of the Borrower to
any Subsidiary, and of any Subsidiary to the Borrower or any other
Subsidiary;
(iii) Indebtedness outstanding on the date hereof and set forth
on Schedule 6.01;
(iv) Indebtedness of the Borrower or any Subsidiary incurred
after the date of this Agreement to finance the acquisition of any
equipment, inventory or general intangibles, or the acquisition,
improvement or construction of any real property, by Borrower or such
Subsidiary (other than assets constituting Collateral or other assets the
removal or loss of which would adversely affect the value of any assets
constituting Collateral), including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such
assets or secured by a Lien on any such assets prior to the acquisition
thereof; PROVIDED that (A) any Indebtedness described in this clause (iv)
incurred in connection with any particular acquisition, improvement or
construction shall be incurred prior to or within 90 days after the
acquisition or the completion of such improvement or construction, as the
case may be, (B) any Indebtedness described in this clause (iv) incurred
in connection with any particular acquisition, improvement or
construction shall not exceed the cost of such acquisition, improvement
or construction and (C) the aggregate amount of all Indebtedness
described in this clause (iv) and Indebtedness set forth on Schedule 6.01
shall not any time exceed the lesser of (I) $[ * ] and (II) the
[ * ];
(v) Indebtedness of the Borrower incurred to refinance any
Indebtedness referred to in clause (iii) or (iv) above, Indebtedness of
any Subsidiary incurred to refinance any Indebtedness of such Subsidiary
referred to in clause (iii) or (iv) above, and until the Partial
Termination Date, Indebtedness of the Parent incurred to refinance any
Indebtedness referred to in clause (viii) below; PROVIDED that (A) the
principal amount of any Indebtedness described in this clause (v) shall
not exceed the principal amount of, plus accrued interest and any
prepayment premiums applicable to, the Indebtedness refinanced thereby,
(B) any Indebtedness described in this clause (v) shall have a scheduled
maturity date that is on or after the scheduled maturity date of the
Indebtedness refinanced thereby, (C) any Indebtedness described in this
clause (v) shall have a weighted average life to maturity that is equal
to or longer than the remaining weighted average life to maturity of the
Indebtedness refinanced thereby (determined immediately prior to giving
effect to such refinancing), (D) any Indebtedness described in this
clause (v) shall not include any provisions that may require mandatory
Repayment thereof prior to scheduled maturity, other than scheduled
repayments taken into account in determining compliance with clause (C)
above and other provisions that are not materially more burdensome than
any such provisions included in the Indebtedness refinanced thereby,
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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and (D) any Indebtedness described in this clause (v) shall not be
secured by any Lien other than Liens on assets securing the Indebtedness
being refinanced thereby and shall not be Guaranteed by any Subsidiary
other than any Subsidiary that Guaranteed the Indebtedness being
refinanced;
(vi) Subordinated Indebtedness;
(vii) until the Partial Termination Date, Indebtedness of the
Parent subordinated in right of payment to the payment of the Obligations
upon terms and conditions satisfactory to the Required Lenders; and
(viii) until the Partial Termination Date, Indebtedness of the
Parent incurred after the date of this Agreement to finance the
acquisition of any equipment, inventory or general intangibles, or the
acquisition, improvement or construction of any real property, by Parent
(other than assets constituting Collateral or other assets the removal or
loss of which would adversely affect the value of any assets constituting
Collateral), including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured
by a Lien on any such assets prior to the acquisition thereof; PROVIDED
that (A) any Indebtedness described in this clause (viii) incurred in
connection with any particular acquisition, improvement or construction
shall be incurred prior to or within 90 days after the acquisition or the
completion of such improvement or construction, as the case may be, (B)
any Indebtedness described in this clause (viii) incurred in connection
with any particular acquisition, improvement or construction shall not
exceed the cost of such acquisition, improvement or construction and (C)
the aggregate amount of all Indebtedness described in this clause (viii)
shall not any time exceed $[ * ].
Section 6.02. LIENS. The Borrower and until the Partial
Termination Date, the Parent will not, and neither the Parent nor the Borrower
will permit any Subsidiary to, create, incur, assume or permit to exist any Lien
on any property or asset now owned or hereafter acquired by it, or assign or
sell any income or revenues (including accounts receivable) or rights in respect
of any thereof, except:
(i) Liens created under the Security Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of the Parent, the
Borrower or any Subsidiary existing on the date hereof and set forth in
Schedule 6.02; PROVIDED that (A) such Lien shall not apply to any other
property or asset of the Parent, the Borrower or any Subsidiary and (B)
such Lien shall secure only those obligations which it secures on the
date hereof; and
(iv) Liens on equipment, inventory, general intangibles or real
property (other than assets constituting Collateral or other assets that
become accessions to assets constituting Collateral or the removal or
loss of which would adversely affect the value of any assets constituting
Collateral) acquired, constructed or improved by the Parent, the Borrower
or a Subsidiary; provided that (A) such Liens secure only Indebtedness
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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permitted by clause (iv) (or until the Partial Termination Date, clause
(viii)) of Section 6.01 or a refinancing thereof permitted by clause (v)
of Section 6.01, (B) such Liens and the Indebtedness secured thereby are
incurred prior to or within 90 days after such acquisition, construction
or improvement of such equipment, inventory, general intangibles or real
property, (C) the Indebtedness secured thereby does not exceed 100% of
the cost of acquiring such equipment, inventory or general intangibles or
acquiring, constructing or improving such real property and (D) such
Liens shall not apply to any other property or assets of the Borrower or
any Subsidiary (or until the Partial Termination Date, the Parent).
Notwithstanding the foregoing, the Borrower will not, and it will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any
Collateral consisting of equipment acquired under the Supply Agreement except
(i) Liens created under the Security Documents and (ii) Liens described in the
definition of clauses (a) and (b) of Permitted Encumbrances.
Section 6.03. FUNDAMENTAL CHANGES.
(a) Neither the Parent nor the Borrower will, and neither of
them will permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
sell, transfer, lease or otherwise dispose of (in one transaction or in a series
of transactions) all or substantially all of its assets, or all or substantially
all of the stock of any of its Subsidiaries (in each case, whether now owned or
hereafter acquired), or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) the Parent may merge with or into any other
Person so long as the Parent is the surviving entity, (ii) the Borrower may
merge with or into any other Person so long as the Borrower is the surviving
entity and remains a wholly owned subsidiary of the Parent, (iii) any Subsidiary
may merge with or into any other wholly owned Subsidiary in a transaction in
which the surviving entity is a Subsidiary and any Subsidiary may merge with or
into Borrower in a transaction in which the Borrower is the surviving entity,
(iv) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets
to the Borrower or to another Subsidiary and (v) any Subsidiary may liquidate or
dissolve if the Borrower determines in good faith that such liquidation or
dissolution is in its best interests and is not disadvantageous to the Lenders.
(b) Neither the Parent nor the Borrower will, and neither of
them will permit any Subsidiary to, and the Parent will not permit any of its
other subsidiaries, to engage to any material extent in any business other than
a Qualifying Business and any businesses incidental, related or ancillary to, or
which are entered into as a means of facilitating or enhancing, any of the
foregoing.
Section 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND
ACQUISITIONS; ASSET SALES.
(a) The Borrower will not, and neither the Parent nor the
Borrower will permit any Subsidiary to, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly owned Subsidiary
prior to such merger) any capital stock, evidences of indebtedness or other
securities (including any option, warrant or other right to
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acquire any of the foregoing) of, make or permit to exist any loans or advances
to, Guarantee any obligations of, or make or permit to exist any investment or
any other interest in, any other Person, or purchase or otherwise acquire (in
one transaction or a series of transactions) any assets of any other Person
constituting a business unit, except:
(i) Permitted Investments;
(ii) investments by the Borrower in the capital stock of the
Subsidiaries and investments by any Subsidiary in the capital stock of
other Subsidiaries;
(iii) loans or advances made by the Borrower to any Subsidiary or
made by any Subsidiary to the Borrower or any other Subsidiary; PROVIDED
that any such Indebtedness shall be subordinated to the Obligations of
the Borrower or the Subsidiary, as applicable, pursuant to a written
subordination agreement in form and substance satisfactory to the
Required Lenders;
(iv) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and suppliers, in each case in the ordinary course of
business;
(v) (A) payroll, travel and similar advances made in the
ordinary course of business that are expected at the time such advances
are made ultimately to be treated as expenses in accordance with GAAP and
(B) other loans and advances by the Borrower or any Subsidiary to their
respective directors, officers or employees in an aggregate principal
amount not exceeding $400,000 at any one time outstanding;
(vi) investments existing on the date hereof and set forth on
Schedule 6.04; and
(vii) Guarantees pursuant to the Loan Documents.
(b) The Borrower will not, and neither the Parent nor the
Borrower will permit any Subsidiary to, sell, transfer, lease or otherwise
dispose of any asset, including any capital stock of or ownership interest in
any other Person owned by it, and the Borrower will not permit any Subsidiary to
issue (other than to the Borrower or a wholly owned Subsidiary) any additional
shares of its capital stock or other ownership interest in such Subsidiary,
except:
(i) transfers constituting investments permitted by paragraph
(a) of this Section or Restricted Payments permitted by Section 6.06;
(ii) sales, transfers and dispositions to the Borrower or a
Subsidiary;
(iii) sales, transfers and dispositions of obsolete, uneconomic
or surplus assets made when no Default has occurred and is continuing;
(iv) dispositions of inventory (other than equipment) in the
ordinary course of business; and
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(v) non-exclusive licenses of software to customers of the
Borrower or any Subsidiary in the ordinary course of business.
PROVIDED that all sales, transfers, leases and other dispositions permitted
hereby (other than pursuant to clause (iii) above) shall be made for fair value
and solely for cash consideration.
(c) Until the Partial Termination Date, the Parent will not
purchase, hold or acquire (including pursuant to any merger with any Person that
was not a wholly owned subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(i) Permitted Investments;
(ii) investments in the capital stock of the Borrower or the
Subsidiaries;
(iii) loans or advances made to the Borrower or any Subsidiary;
(iv) investments in the capital stock of or other equity
interests in, and loans and advances to, any Person (other than the
Borrower and the Subsidiaries) provided that the aggregate amount of such
investments, loans and advances made shall not exceed the amount of the
aggregate net cash proceeds of the issuance and sale after the date
hereof by the Parent of any of its capital stock or any Indebtedness
incurred pursuant to Section 6.01(vii).
(v) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and suppliers, in each case in the ordinary course of
business;
(vi) (A) payroll, travel and similar advances made in the
ordinary course of business that are expected at the time such advances
are made ultimately to be treated as expenses in accordance with GAAP and
(B) other loans and advances by the Parent to its directors, officers or
employees, PROVIDED that the aggregate principal amount of loans and
advances of the type described under this clause (vi) and Section
6.04(a)(v) at any one time outstanding shall not exceed $400,000;
(vii) Guarantees by the Parent of the obligations (other than
Indebtedness) of any subsidiary of the Parent required by any
Governmental Authority in connection with the application by such
subsidiary for certification as a competitive local exchange carrier; and
(viii) Guarantees by the Parent pursuant to the Loan Documents.
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(d) Until the Partial Termination Date, the Parent will not
sell, transfer, lease or otherwise dispose of any asset, including any capital
stock of or ownership interest in any other Person owned by it, except:
(i) transfers constituting investments permitted by paragraph
(c) of this Section;
(ii) sales, transfers and dispositions to the Borrower or a
Subsidiary;
(iii) sales, transfers and dispositions of obsolete, uneconomic
or surplus assets made when no Default has occurred and is continuing;
(iv) dispositions of inventory (other than equipment) in the
ordinary course of business; and
(v) non-exclusive licenses of software to customers of the
Parent in the ordinary course of business;
PROVIDED that all sales, transfers, leases and other dispositions permitted
pursuant to clauses (i) and (iv) above shall be made for fair value and solely
for cash consideration and all sales, transfers, leases and other dispositions
permitted pursuant to clause (ii) shall be made solely for capital stock or
Indebtedness of the Borrower.
(e) The Parent will not sell, transfer, lease or otherwise
dispose of any capital stock, ownership interest or other investment in the
Borrower owned by it, or permit the Borrower to issue any capital stock to any
Person other than the Parent.
Section 6.05. HEDGING AGREEMENTS. The Borrower will not, and
neither the Parent nor the Borrower will permit any Subsidiary to, enter into
any Hedging Agreement, other than Hedging Agreements required by Section 5.13
and other Hedging Agreements entered into in the ordinary course of business to
hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in
the conduct of its business or the management of its liabilities.
Section 6.06. RESTRICTED PAYMENTS. The Borrower will not, and
neither the Parent nor the Borrower will permit any Subsidiary to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
except (i) the Borrower may make Restricted Payments to the Parent (x) in
additional shares of its common stock or Permitted Preferred Stock (including
options, warrants and other rights to purchase shares of such common stock or
Permitted Preferred Stock), and (y) in cash in an amount not exceeding any
amount that shall be then due and payable by the Borrower in respect of any
Subordinated Indebtedness, provided that any such Restricted Payment may be made
only to the extent that such amount then due and payable may be paid by the
Borrower in compliance with the subordination agreement applicable to the
payment of such Subordinated Indebtedness, and (ii) Subsidiaries may make
Restricted Payments to the Borrower or other wholly owned Subsidiaries. Until
the Partial Termination Date, the Parent will not declare or make, or agree to
pay or make, directly or indirectly, any Restricted Payment.
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Section 6.07. TRANSACTIONS WITH AFFILIATES. The Borrower will
not, and neither the Parent nor the Borrower will permit any Subsidiary to,
sell, lease or otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise engage in any
other transactions with, any of its Affiliates, except (a) transactions that are
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, (b) transactions between or among the Borrower and the Subsidiaries not
involving any other Affiliate; and (c) pursuant to the Administrative
Agreement.
Section 6.08. RESTRICTIVE AGREEMENTS. The Borrower will not, and
neither the Parent nor the Borrower will permit any Subsidiary to, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon the ability
of any Subsidiary to pay dividends or other distributions with respect to any
shares of its capital stock or to make or repay loans or advances to the
Borrower or to Guarantee Indebtedness of the Borrower; PROVIDED that (a) the
foregoing shall not apply to restrictions and conditions imposed by law or by
any Loan Document and (b) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.08 (but shall
apply to any extension or renewal of, or any amendment or modification expanding
the scope of, any such restriction or condition).
Section 6.09. REPAYMENT OF INDEBTEDNESS. The Borrower will not
make any Repayment in respect of any Subordinated Indebtedness in violation of
the subordination agreement applicable to the payment of such Subordinated
Indebtedness.
Section 6.10. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The
Borrower will not, and neither the Parent nor the Borrower will permit any
Subsidiary to, enter into any arrangement, directly or indirectly, whereby it
shall sell or transfer any property, real or personal, used or useful in its
business, whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property that it intends to use for substantially the
same purpose or purposes as the property sold or transferred, except for any
such sale of any fixed or capital asset that is made for cash consideration in
an amount not less than the cost of such fixed or capital asset and is
consummated within 90 days after the Borrower or such Subsidiary acquires or
completes the construction of such fixed or capital asset.
Section 6.11. SENIOR INDEBTEDNESS TO TOTAL CAPITALIZATION.
Neither the Parent nor the Borrower will permit the ratio of Senior Indebtedness
to Total Capitalization at any time during any period set forth below to be
greater than the ratio set forth below opposite such period:
Period Ratio
------ -----
On or after the Effective Date, but prior to [ * ]
March 31, 2001
On or after March 31, 2001, but prior to [ * ]
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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Period Ratio
------ -----
June 30, 2003
On or after June 30, 2003, but prior to [ * ]
December 31, 2003
On or after December 31, 2003, but prior [ * ]
to March 31, 2004
On or after March 31, 2004, but prior [ * ]
to June 30, 2004
On or after June 30, 2004, but prior [ * ]
to March 30, 2005
On or after March 30, 2005 [ * ]
Section 6.12. CONSOLIDATED INDEBTEDNESS TO TOTAL CAPITALIZATION.
Neither the Parent nor the Borrower will permit the ratio of Consolidated
Indebtedness to Total Capitalization at any time during any period set forth
below to be greater than the ratio set forth below opposite such period:
Period Ratio
------ -----
On or after the Effective Date, but prior [ * ]
to March 31, 2000
On or after March 31, 2000, but prior [ * ]
to March 31, 2001
On or after March 31, 2001, but prior [ * ]
to June 30, 2003
On or after June 30, 2003 [ * ]
Section 6.13. CONSOLIDATED INDEBTEDNESS TO ANNUALIZED EBITDA.
Neither the Parent nor the Borrower will permit the ratio of (a) Consolidated
Indebtedness to (b) Annualized EBITDA at any time during any period set forth
below to be greater than the ratio set forth below opposite such period:
Period Ratio
------ -----
On or after September 30, 2001, but prior [ * ]
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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Period Ratio
------ -----
to December 31, 2001
On or after December 31, 2001, but prior [ * ]
to September 30, 2002
On or after September 30, 2002, but prior [ * ]
to December 31, 2002
On or after December 31, 2002 [ * ]
Section 6.14. SENIOR INDEBTEDNESS TO ANNUALIZED EBITDA. Neither
the Parent nor Borrower will permit the ratio of (a) Senior Indebtedness to (b)
Annualized EBITDA at any time during any period set forth below to be greater
than the ratio set forth below opposite such period:
Period Ratio
------ -----
On or after June 30, 2001, but prior to [ * ]
September 30, 2001
On or after September 30, 2001, but prior [ * ]
to December 31, 2001
On or after December 31, 2001, but prior [ * ]
to September 30, 2002
On or after September 30, 2002, but prior [ * ]
to December 31, 2002
On or after December 31, 2002, but prior [ * ]
to June 30, 2003
On or after June 30, 2003 [ * ]
Section 6.15. ANNUALIZED EBITDA TO CONSOLIDATED INTEREST EXPENSE.
Neither the Parent nor the Borrower will permit the ratio of (a) Annualized
EBITDA to (b) Consolidated Interest Expense for the period of four fiscal
quarters then most recently ended at any time during any period set forth below
to be less than the ratio set forth below opposite such period:
Period Ratio
------ -----
On or after June 30, 2001, but prior to [ * ]
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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Period Ratio
------ -----
September 30, 2001
On or after September 30, 2001, but prior [ * ]
to December 31, 2001
On or after December 31, 2001, but prior [ * ]
to September 30, 2002
On or after September 30, 2002, but prior [ * ]
to June 30, 2004
On or after June 30, 2004 [ * ]
Section 6.16. ANNUALIZED EBITDA TO CONSOLIDATED DEBT SERVICE.
Neither the Parent nor the Borrower will permit the ratio of (a) Annualized
EBITDA to (b) Consolidated Debt Service for the period of four fiscal quarters
then most recently ended at any time during any period set forth below to be
less than the ratio set forth below opposite such period:
Period Ratio
------ -----
On or after June 30, 2001, but prior to [ * ]
September 30, 2001
On or after September 30, 2001, but prior [ * ]
to December 31, 2001
On or after December 31, 2001 [ * ]
Section 6.17. CONSOLIDATED GROSS REVENUES. Neither the Parent nor
the Borrower will permit Consolidated Gross Revenues for any 12-calendar month
period ended on any date set forth below to be less than the amount set forth
below opposite such date:
December 31, 1999 [ * ]
March 31, 2000 [ * ]
June 30, 2000 [ * ]
September 30, 2000 [ * ]
December 31, 2000 [ * ]
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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March 31, 2001 [ * ]
June 30, 2001 [ * ]
September 30, 2001 [ * ]
December 31, 2001 [ * ]
March 31, 2002 [ * ]
June 30, 2002 [ * ]
September 30, 2002 [ * ]
December 31, 2002 [ * ]
Section 6.18. MINIMUM SUBSCRIBERS. Neither the Parent nor the
Borrower will permit the minimum number of Subscribers as of any date set forth
below to be less than the number set forth opposite such date:
Date Number
---- ------
September 30, 1999 [ * ]
December 31, 1999 [ * ]
March 31, 2000 [ * ]
June 30, 2000 [ * ]
September 30, 2000 [ * ]
December 31, 2000 [ * ]
March 31, 2001 [ * ]
June 30, 2001 [ * ]
September 30, 2001 [ * ]
December 31, 2001 [ * ]
March 31, 2002 [ * ]
June 30, 2002 [ * ]
September 30, 2002 [ * ]
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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December 31, 2002 [ * ]
Section 6.19. CONSOLIDATED PARENT INDEBTEDNESS TO TOTAL PARENT
CAPITALIZATION. The Parent will not permit the ratio (a) of Consolidated Parent
Indebtedness to (b) Total Parent Capitalization at any time during any period
set forth below to be greater than the ratio set forth below opposite such
period:
Period Ratio
------ -----
On or after the Effective Date, but
prior to March 31, 2000 [ * ]
On or after March 31, 2000, but
prior to June 30, 2001 [ * ]
On or after June 30, 2001, but
prior to June 30, 2003 [ * ]
On or after June 30, 2003 [ * ]
Section 6.20. CONSOLIDATED PARENT INDEBTEDNESS TO ANNUALIZED
PARENT EBITDA. The Parent will not permit the ratio of (a) Consolidated
Parent Indebtedness to (b) Annualized Parent EBITDA at any time during any
period set forth below to exceed the ratio set forth below opposite such
period:
Period Ratio
------ -----
On or after September 30, 2001, but
prior to June 30, 2002 [ * ]
On or after June 30, 2002, but
prior to June 30, 2003 [ * ]
On or after June 30, 2003 [ * ]
Section 6.21. USE OF COLLATERAL.
(a) Except as otherwise provided in clause (b) of this Section
6.21, neither the Parent nor the Borrower will permit, and neither of them will
permit any Subsidiary to permit, any tangible asset constituting Collateral to
be located (i) outside a Permitted UCC Jurisdiction, (ii) outside the possession
of the Borrower or a Subsidiary or (iii) on any property not (A) owned by the
Borrower or a Subsidiary or (B) leased by the Borrower or a Subsidiary (or
subject to an
* INDICATES CONFIDENTIAL TREATMENT REQUESTED
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interconnection agreement granting rights to the Borrower or Subsidiary
substantially similar to a lease) from a Person that has not delivered a
Landlord Letter to the Agents.
(b) The Parent or the Borrower may permit, and either of them
may permit any Subsidiary to permit, (i) Collateral other than Lucent Product to
be in the possession of or located on property owned or leased by the Parent (or
subject to an interconnection agreement granting rights to the Parent
substantially similar to a lease) until the Partial Termination Date; (ii)
Borrower-Related Collateral to be in the possession of the Parent and located on
property owned or leased by the Parent; and (iii) Collateral other than Lucent
Product to be located at the principal office of the Parent and the Borrower
without the delivery by the lessor of such property of a Landlord Letter to the
Agents.
(c) This Section 6.21 shall not be construed to prohibit (i)
the return of any asset constituting Collateral to the vendor thereof for
repairs, services, modifications or other similar purposes or (ii) the storage
of any asset constituting Collateral in any warehouse or similar facility.
(d) Neither the Parent nor the Borrower will permit any asset
constituting Collateral to be located outside a Permitted UCC Jurisdiction
unless (i) the Parent or the Borrower shall have notified the Lenders thereof
reasonably in advance of any such assets being transferred outside the Permitted
UCC Jurisdiction and (ii) the Required Lenders shall be reasonably satisfied
that (A) the laws of the jurisdiction in which such assets are to be located
adequately protect the interests of the Lenders in such Collateral, (B) the
security interests in such Collateral granted under the Security Documents will
continue to be adequately protected and perfected, (C) there are not any
material risks relating to the political or economic stability of the
jurisdiction in which such Collateral is to be located or the Person that will
possess such Collateral in such jurisdiction, and (D) the location of such
Collateral in such jurisdiction is not otherwise materially disadvantageous to
the Lenders. The Borrower shall deliver to the Lenders, with a copy to the
Agents, such legal opinions and other documentation as either Agent or the
Required Lenders shall reasonably request in connection with their consideration
or approval of any proposed transfer of Collateral outside a Permitted UCC
Jurisdiction.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("EVENTS OF DEFAULT") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause (a) of
this Article) payable under this Agreement, when and as the same shall become
due and payable, and such failure shall continue unremedied for a period of five
days (in the case of interest or fees) or five days after notice thereof from
the Administrative Agent or any Lender (in the case of any such other amount);
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(c) any representation or warranty made or deemed made by or on
behalf of any Loan Party in or in connection with any Loan Document or any
amendment or modification thereof or waiver thereunder, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with any Loan Document or any amendment or modification thereof or
waiver thereunder, shall prove to have been incorrect in any respect (or, in the
case of any representation or warranty that is not qualified as to materiality,
in any material respect) when made or deemed made;
(d) the Parent or the Borrower shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.02(a)(i), 5.04 (with
respect to the legal existence of the Parent or the Borrower and subject to the
proviso contained therein) or 5.10 or in Article VI;
(e) any Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document (other than
those specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender);
(f) any Loan Party shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable (after giving
effect to any period of grace expressly applicable thereto);
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (after giving effect to any period of grace expressly applicable
thereto) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become due,
or to require the prepayment, repurchase, redemption or defeasance thereof,
prior to its scheduled maturity; PROVIDED that this clause (g) shall not apply
to secured Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization or
other relief in respect of the Parent, the Borrower or any Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Parent, the Borrower or any Subsidiary
or for a substantial part of its assets, and, in any such case, such proceeding
or petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;
(i) the Parent, the Borrower or any Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect, (ii) consent
to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in clause (h) of this Article, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the
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Parent, the Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the benefit
of creditors or (vi) take any action for the purpose of effecting any of the
foregoing;
(j) the Parent, the Borrower or any Subsidiary shall become
unable, admit in writing its inability or fail generally to pay its debts as
they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $500,000 shall be rendered against the Parent, the
Borrower or any Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution shall
not be effectively stayed, or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of the Parent, the Borrower or any
Subsidiary to enforce any such judgment;
(l) any Lien on any material portion of the Collateral
purported to be created under the Security Documents shall cease to be, or shall
be asserted by the Parent, the Borrower or any Subsidiary not to be, a valid and
perfected Lien on any Collateral, with the priority required by the Security
Documents, except as a result of the sale or other disposition of the applicable
Collateral in a transaction permitted under the Loan Documents;
(m) a Change in Control shall occur;
(n) the loss, revocation, suspension or material impairment of
any license or agreement (or combination of licenses and agreements) of (i) the
Parent or (ii) the Borrower and the Subsidiaries shall occur that results in or
could reasonably be expected to result in a Material Adverse Effect; or
(o) an ERISA Event shall have occurred that when taken together
with all other ERISA Events that have occurred, could reasonably be expected to
result in a Material Adverse Effect; then, and in every such event (other than
an event with respect to the Borrower described in clause (h) or (i) of this
Article), and at any time thereafter during the continuance of such event, the
Administrative Agent may, and at the request of the Required Lenders shall, by
notice to the Borrower, take either or both of the following actions, at the
same or different times: (i) terminate the Commitments, and thereupon the
Commitments shall terminate immediately, and (ii) declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; and in case of any event with
respect to the Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
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ARTICLE VIII
THE AGENTS
Each of the Lenders hereby irrevocably appoints each Agent as its
agent and authorizes each Agent to take such actions on its behalf and to
exercise such powers as are delegated to such Agent by the terms of the Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
Any Person serving as an Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not an Agent, and such Person and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Parent or any Subsidiary or other Affiliate thereof as
if it were not an Agent hereunder.
Neither Agent shall have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) neither Agent shall be subject to any fiduciary or other
implied duties, regardless of whether a Default has occurred and is continuing,
(b) neither Agent shall have any duty to take any discretionary action or
exercise any discretionary powers, except discretionary rights and powers
expressly contemplated by the Loan Documents that such Agent is required to
exercise in writing by the Required Lenders (or such other number or percentage
of the Lenders as shall be necessary under the circumstances as provided in
Section 9.02), and (c) except as expressly set forth in the Loan Documents,
neither Agent shall have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the Parent or any of its
Subsidiaries that is communicated to or obtained by the Person serving as Agent
or any of its Affiliates in any capacity. Neither Agent shall be liable for any
action taken or not taken by it with the consent or at the request of the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02) or in the absence
of its own gross negligence or willful misconduct. Each Agent shall be deemed
not to have knowledge of any Default unless and until written notice thereof is
given to such Agent by a Loan Party or a Lender, and neither Agent shall be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder
or in connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth in any Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of any
Loan Document or any other agreement instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to such Agent.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Parent or the Borrower), independent accountants and other experts selected by
it, and shall not be liable for any action
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taken or not taken by it in accordance with the advice of any such counsel,
accountants or experts.
Each Agent may perform any and all its duties and exercise its
rights and powers by or through any one or more sub-agents appointed by such
Agent. Each Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of each Agent and any such sub-agent, and
shall apply to their respective activities in connection with the syndication of
the credit facilities provided for herein as well as activities as Agent.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, an Agent may resign at any time by notifying the
Lenders and the Borrower. Upon any such resignation, the Required Lenders shall
have the right to appoint a successor with the approval of the Borrower (which
approval shall not be unreasonably withheld or delayed and, if an Event of
Default has occurred and is continuing, shall not be required). If no successor
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent with the approval of the Borrower (which approval shall not be
unreasonably withheld or delayed and, if an Event of Default has occurred and is
continuing, shall not be required) which shall be a bank with an office in New
York, New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After an Agent's resignation
hereunder, the provisions of this Article and Section 9.03 shall continue in
effect for the benefit of such retiring Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Agent.
Each Lender acknowledges that it has, independently and without
reliance upon either Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon either Agent or any other Lender
and based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or related agreement
or any document furnished hereunder or thereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.01. NOTICES. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for
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herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower or the Parent, to it at 1099 18th
Street, Suite 700, Denver, Colorado 80202 (Telecopy No. (303) 226-8305);
(b) if to the Collateral Agent, to it at 2 Avenue de Lafayette,
Boston, Massachusetts 02111-174, Attention of Global Investor Services Group
Corporate Trust (Telecopy No. (617) 662-1465);
(c) if to the Administrative Agent, to it at 283 King George
Road, Warren, New Jersey 07059, Attention of Assistant Treasurer-Project Finance
(Telecopy No. (908) 559-1711);
(d) if to Lucent, to it at 283 King George Road, Warren, New
Jersey 07059, Attention of Assistant Treasurer-Project Finance (Telecopy No.
(908) 559-1711); and
(e) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
Section 9.02. WAIVERS; AMENDMENTS.
(a) No failure or delay by either Agent or any Lender in
exercising any right or power hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the Agents and
the Lenders hereunder and under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of any Loan Document or consent to any departure by any
Loan Party therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan
shall not be construed as a waiver of any Default, regardless of whether an
Agent or any Lender may have had notice or knowledge of such Default at the
time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Parent, the Borrower and the Required Lenders or, in the
case of any other Loan Document, pursuant to an agreement or agreements in
writing entered into by the applicable Agent and the Loan Party or Loan Parties
that are parties thereto with the consent of the Required Lenders; PROVIDED that
no such agreement shall (i) increase the Commitment of any Lender without the
written consent of such
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Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest on such Loan, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or any interest thereon, or any fees
payable hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Commitment, without the written
consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) change any of the provisions of
this Section or the definition of "Required Lenders" or any other provision of
any Loan Document specifying the number or percentage of Lenders required to
waive, amend or modify any rights thereunder or make any determination or grant
any consent thereunder, without the written consent of each Lender, (vi) release
all or any substantial part of the Collateral from the Liens of the Security
Documents (except as expressly provided therein), without the written consent of
each Lender, (vii) release the Parent or any Guarantor Subsidiary from its
Guarantee under the Guarantee Agreement (except as expressly provided in the
Guarantee Agreement) or limit or condition its obligations thereunder, without
the written consent of each Lender, or (viii) change any provisions of any Loan
Document in a manner that by its terms adversely affects the rights in respect
of payments due to Lenders holding Loans of any Class differently than those
holding Loans of any other Class, without the written consent of Lenders holding
a majority in interest of the outstanding Loans of each affected Class and, in
the case of a Class with respect to which the Availability Period has not ended,
a majority in interest of the Commitments (in addition to any other consents
required by this sentence); PROVIDED FURTHER that no such agreement shall amend,
modify or otherwise affect the rights or duties of either Agent without the
prior written consent of such Agent.
Section 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a) Each of the Parent and the Borrower shall pay (i) all costs
and expenses incurred by Lucent and each Agent, including the reasonable fees,
charges and disbursements of counsel for Lucent or the Agents, in connection
with the negotiation, preparation, execution and delivery of the Loan Documents
(including, in the case of Lucent, expenses incurred in connection with its due
diligence activities) and (ii) all costs and expenses incurred by either Agent
or any Lender, including the reasonable fees, charges and disbursements of any
counsel for either Agent or any Lender, in connection with (A) the enforcement
or protection of its rights in connection with the Loan Documents, including its
rights under this Section, or in connection with the Loans made hereunder,
including all such costs and expenses incurred during any workout, restructuring
or negotiations in respect of such Loans, and (B) in the case of Lucent and the
Agents, the administration of, and any amendments, modifications, waivers or
supplements of or to the provisions of, any of the Loan Documents.
(b) Each of the Parent and the Borrower shall indemnify each
Agent and each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an "INDEMNITEE") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable fees, charges and disbursements of
any counsel for any Indemnitee, incurred by or asserted against any Indemnitee
arising out of, in connection with, or as a result of (i) the execution or
delivery of any Loan Document or any other agreement or instrument contemplated
hereby, the performance by the parties to the Loan Documents of their respective
obligations thereunder or the consummation of
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the Transactions or any other transactions contemplated hereby, (ii) any Loan or
the use of the proceeds therefrom, (iii) any actual or alleged presence or
release of Hazardous Materials on or from any property owned or operated by the
Parent, the Borrower or any of the Subsidiaries or at which any Collateral is
located, or any Environmental Liability related in any way to the Parent, the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses have resulted from the gross negligence or
willful misconduct of such Indemnitee.
(c) To the extent that the Parent and the Borrower fail to pay
any amount required to be paid by it to either Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to such Agent such Lender's
pro rata share (determined as of the time that the applicable unreimbursed
expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against such Agent in
its capacity as such. For purposes hereof, a Lender's "pro rata share" shall be
determined based upon its share of the sum of the total outstanding Loans and
Commitments at the time.
(d) To the extent permitted by applicable law, neither the
Parent nor the Borrower shall assert, and each of them hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement or any
agreement or instrument contemplated hereby, the Transactions, any Loan or the
use of the proceeds thereof.
(e) All amounts due under this Section shall be payable not
later than 30 days after written demand therefor.
Section 9.04. SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that neither the Parent nor the Borrower may
assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender (and any attempted assignment or
transfer by the Borrower without such consent shall be null and void). Nothing
in this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Agents and the Lenders) any legal or equitable right,
remedy or claim under or by reason of this Agreement.
(b) Any Lender may, without the consent of the Parent or the
Borrower, assign to one or more Eligible Persons all or a portion of its rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it); PROVIDED that (i) except in
the case of an assignment to Lucent or a Lender or to an Affiliate of Lucent or
a Lender, the Administrative Agent must give its prior written consent to such
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assignment (which consent shall not be unreasonably withheld or delayed and,
while an Event of Default has occurred and is continuing, shall not be
required), (ii) except in the case of an assignment to Lucent, a Lender or an
Affiliate of Lucent or a Lender or an assignment of the entire remaining amount
of the assigning Lender's Commitment or entire remaining Loans of any Class, the
amount of the Commitment and Loans of such Class of the assigning Lender subject
to each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $1,000,000 unless the Borrower otherwise consents, (iii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning Lender's rights and obligations under this Agreement, except that
this clause (iii) shall not be construed to prohibit the assignment of a
proportionate part of all of the assigning Lender's rights and obligations in
respect of (A) one or more Classes of Loans, (B) one or more Classes of Loans
separately from (or without assigning) Commitments or (C) Commitments separately
from (or without assigning) Loans, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing fee of $5,000, and (v) the assignee, if it shall not
be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire. Subject to acceptance and recording thereof pursuant to
paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by
a Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitments of, and principal
amount of the Loans owing to, each Lender pursuant to the terms hereof from time
to time (the "REGISTER"). The entries in the Register shall be conclusive, and
the Borrower, the Agents and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder) and the processing fee referred to in clause (v) of paragraph
(b) of this Section, subject to the Borrower's right to consent to such
assignment to the extent provided in paragraph (b)(ii) of this Section and the
Administrative Agent's right to consent to such assignment to the extent
provided in paragraph (b) of this Section, the Administrative Agent shall accept
such Assignment and Acceptance and
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record the information contained therein in the Register. No assignment shall be
effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more Eligible Persons (a
"PARTICIPANT") in all or a portion of such Lender's rights and obligations under
this Agreement (including all or a portion of its Commitments and the Loans
owing to it); PROVIDED that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Agents and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents; PROVIDED that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant
Subject to paragraph (f) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section provided that such
Participant agrees to be subject to Sections 2.15(f) and 2.17 as though it was a
Lender. To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 9.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.16(c) as though it were a Lender.
(f) A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower
is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as
though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; PROVIDED that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
Section 9.05. SURVIVAL. All covenants, agreements,
representations and warranties made by the Loan Parties in the Loan Documents
and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that either Agent or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid and so long
as the
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Commitments have not expired or terminated. The provisions of Sections 2.13,
2.14, 2.15 and 9.03 and Article VIII shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Commitments or
the termination of this Agreement or any provision hereof.
Section 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Documents and any separate letter agreements with respect to (i)
the agreement of the Parent and the Borrower to cooperate with Lucent with
respect to marketing, selling or syndicating Loans and Commitments or with
respect to fees payable to Lucent or either Agent and (ii) the agreement of the
Parent and the Borrower with the Collateral Agent and Lucent as to the identity
of the Senior Officers of the Parent on the date hereof, constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating to
the subject matter hereof. Except as provided in Section 4.01(a), this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
Section 9.07. SEVERABILITY. Any provision of this Agreement held
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
Section 9.08. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
Section 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
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(b) Each of the Parent and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Loan Document shall
affect any right that either Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan Document
against the Parent, the Borrower or their properties in the courts of any
jurisdiction.
(c) Each of the Parent and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each of the Parent and the Borrower hereby irrevocably
appoints and designates CT Corporation System, whose address is 1633 Broadway,
New York, New York 10019, or any other person having and maintaining a place of
business in the State of New York whom the Parent or the Borrower may from time
to time hereafter designate (having given 30 days' notice thereof to the
Administrative Agent, each Lender and the Collateral Agent), as the true and
lawful attorney and duly authorized agent for acceptance of service of legal
process of the Parent and the Borrower. Without prejudice to the foregoing,
each party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 9.01. Nothing in this Agreement or any
other Loan Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
Section 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
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Section 9.11. HEADINGS. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
Section 9.12. CONFIDENTIALITY. Each of the Agents and the Lenders
agrees to maintain the confidentiality of the Information (as defined below) and
not use the Information for any purpose not contemplated by this Agreement,
except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section,
to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Parent or the Borrower or (h) to the extent such Information
(i) becomes publicly available other than as a result of a breach of this
Section or (ii) becomes available to either Agent or any Lender on a
nonconfidential basis from a source other than the Parent or the Borrower. For
the purposes of this Section, "INFORMATION" means all information received from
the Parent or the Borrower relating to the Parent, the Borrower or their
businesses, other than any such information that is publicly available or
available to either Agent or any Lender on a nonconfidential basis prior to
disclosure by the Parent or the Borrower, provided that such information is
identified at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
Section 9.13. INTEREST RATE LIMITATION. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "CHARGES"), shall exceed the
maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, and if
lawful, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by such Lender.
(Signatures Follow on Next Page)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
JATO OPERATING CORP.
By: /s/ Brian E. Gast
----------------------------------
Name:
Title:
JATO COMMUNICATIONS CORP.
By: /s/ Brian E. Gast
----------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
individually and as Collateral Agent,
By: /s/ Gary Dougherty
----------------------------------
Name:
Title:
LUCENT TECHNOLOGIES INC., individually
and as Administrative Agent,
By: /s/ Leslie L. Rogers
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF ASSIGNMENT AND ACCEPTANCE]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of July 14,
1999 (as the same may be amended, supplemented or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among JATO COMMUNICATIONS CORP., a Delaware
corporation ("PARENT"), JATO OPERATING CORP., a Delaware corporation (the
"BORROWER"), the Lenders party thereto, STATE STREET BANK AND TRUST COMPANY, as
Collateral Agent, and LUCENT TECHNOLGIES INC., as Administrative Agent.
Capitalized terms used herein but not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
1. The Assignor sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth below, the interests
set forth below (the "ASSIGNED INTEREST") in the Assignor's rights and
obligations under the Credit Agreement, including, without limitation, the
percentages and amounts set forth on the reverse hereof of (a) the Commitments
of the Assignor on the Effective Date and (b) the Loans and Borrowings owing to
the Assignor that are outstanding on the Effective Date. The Assignee hereby
acknowledges receipt of a copy of the Credit Agreement. From and after the
Effective Date (a) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the interests assigned
by this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (b) the Assignor shall, to the
extent of the interests assigned by this Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Credit Agreement (and
in the event that this Assignment and Acceptance covers all or the remaining
portion of the Assignor's rights and obligations under the Credit Agreement, the
Assignor shall cease to be a party thereto but shall continue to be entitled to
the benefits of Sections 2.13, 2.15, 2.19 and 9.05 thereof, as well as to any
fees accrued for its account and not yet paid).
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (a) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.15 of the Credit Agreement, duly completed and executed by such Assignee, (b)
if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire and (c) a processing and recordation fee of
$[____________].
3. This Agreement and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
A-1
<PAGE>
Date of Assignment:
Legal Name of Assignee:
Legal Name of Assignor:
Assignee's Address for Notices
Effective Date of Assignment (may not be fewer than five Business
Days after the Date of Assignment):
<TABLE>
<CAPTION>
PERCENTAGE ASSIGNED OF
FACILITY AND COMMITMENTS
THEREUNDER (SET FORTH TO
AT LEAST EIGHT DECIMALS,
AS A PERCENTAGE OF THE
FACILITY AND THE
AGGREGATE COMMITMENTS OF
COMMITMENT PRINCIPAL AMOUNTASSIGNED ALL LENDERS THEREUNDER)
- ---------- ------------------------ -----------------------
<S> <C> <C>
Loans :
Tranche 1: $ %
Tranche 2: $ %
Loan Commitments:
Tranche 1: $ %
Tranche 2: $ %
</TABLE>
A-2
<PAGE>
The terms set forth above are hereby agreed to:
[ ]
-----------------------
as Assignor,
By:
----------------------------------
Name:
Title:
[ ]
---------------------------
as Assignee,
By:
----------------------------------
Name:
Title:
Consented to by (if required under
Section 9.04(b)(ii) of the Credit
Agreement):
LUCENT TECHNOLOGIES INC.,
as Administrative Agent
By:
----------------------------------
Name:
Title:
A-3
<PAGE>
EXHIBIT B
[FORM OF GUARANTEE AGREEMENT]
GUARANTEE AND SUBORDINATION AGREEMENT
GUARANTEE AND SUBORDINATION AGREEMENT dated as of July 14, 1999, by JATO
COMMUNICATIONS CORP., a Delaware corporation (together with its successors,
the "Parent"), and the subsidiaries of the Borrower (as defined below) listed
on the signature pages hereof (each of the Parent and such subsidiaries,
together with its successors, a "Guarantor" and collectively, the
"Guarantors"), in favor of STATE STREET BANK AND TRUST COMPANY, as collateral
agent (together with its successors in such capacity, the "Collateral Agent").
WITNESSETH:
WHEREAS, Jato Operating Corp., a Delaware corporation (together with its
successors, the "Borrower"), the Parent, certain lenders (the "Lenders"),
State Street Bank and Trust Company, as Collateral Agent, and Lucent
Technologies Inc., as administrative agent (the "Administrative Agent") have
entered into a Credit Agreement dated as of July 14, 1999, (as the same may
be amended, restated or supplemented and in effect from time to time, the
"Credit Agreement"), providing, subject to the terms and conditions thereof,
for the making of loans by the Lenders to the Borrower;
WHEREAS, the Borrower is a wholly owned Subsidiary of the Parent and
each Guarantor (other than Parent) is a subsidiary of the Borrower;
WHEREAS, the obligations of the Lenders to make Loans under the Credit
Agreement that each Guarantor execute and deliver a guarantee and
subordination agreement whereby such Guarantor shall guarantee the payment
when due of all principal, interest and other amounts that shall be at any
time payable by the Borrower under the Credit Agreement or any other Loan
Document; and
WHEREAS, the Guarantors are willing to guarantee the obligations of the
Borrower to pay any amounts under the Credit Agreement and the other Loan
Documents;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and not
otherwise defined herein have, as used herein, the respective meanings
provided for therein.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents
as to itself that:
(a) Such Guarantor (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (ii) has all requisite corporate
<PAGE>
power, and has all governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being
or as proposed to be conducted, except in the case of such licenses,
authorizations, consents and approvals, where the failure to obtain them
would not have a material adverse effect on its condition (financial or
otherwise), business, operations or prospects and (iii) is qualified to do
business in all jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure so to qualify
would have a material adverse effect on its condition (financial or
otherwise), business, operations or prospects.
(b) Such Guarantor has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Guarantee Agreement;
the execution, delivery and performance by such Guarantor of this Guarantee
Agreement has been duly authorized by all necessary corporate action; and
this Guarantee Agreement has been duly and validly executed and delivered by
such Guarantor and constitutes the legal, valid and binding obligation of
such Guarantor, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general equitable
principles.
(c) Neither the execution and delivery by such Guarantor of the Loan
Documents to which it is party nor compliance with the terms and provisions
thereof by such Guarantor will conflict with or result in a breach of, or
require any consent under, the certificate of incorporation or by-laws of
such Guarantor or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which such Guarantor is a party or by which it is
bound or to which it is subject, or constitute a default under any such
agreement or instrument, or (except for the Liens created pursuant to, or
permitted by, the Security Documents) result in the creation or imposition of
any Lien upon any of the revenues or assets of such Guarantor pursuant to the
terms of any such agreement or instrument.
(d) There are no legal or arbitral proceedings or any proceedings by or
before any governmental or regulatory authority or agency, now pending or, to
the knowledge of such Guarantor, threatened against or affecting such
Guarantor as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect (other than Disclosed Matters).
(e) Such Guarantor has obtained all authorizations, approvals and
consents of, and has made all filings and registrations with, any
governmental or regulatory authority or agency and any third party necessary
for the consummation of the transactions contemplated hereby and the
execution, delivery or performance by it of any Loan Document to which it is
a party, or for the validity or enforceability thereof, except for filing and
recordings of the Liens created pursuant to, or permitted by, the Security
Documents.
SECTION 3. THE GUARANTEE. Each Guarantor hereby unconditionally
guarantees the full and punctual payment of the principal of and interest
(including interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans thereunder and interest
accruing at the then applicable rate provided in the Credit Agreement after
the filing of
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any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Loan Party thereunder
whether or not a claim for post-filing or post-petition interest is allowed
in such proceeding) on the Loans payable by the Borrower under the Credit
Agreement, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, and (b) all other amounts payable
by the Borrower from time to time to any of the Secured Parties under the
Credit Agreement and the other Loan Documents, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including all fees and disbursements of counsel to any
of the Secured Parties that are required to be paid by the Borrower pursuant
to the terms of the Credit Agreement or any other Loan Document). Upon
failure by the Borrower to pay punctually any such amount, each Guarantor
agrees that it shall forthwith on demand pay the amount not so paid at the
place and in the manner specified in the Credit Agreement or the relevant
other Loan Document, as the case may be.
SECTION 4. GUARANTEE UNCONDITIONAL. The obligations of each Guarantor
hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Borrower under the Credit
Agreement or any other Loan Document or any obligation of any Guarantor
hereunder or under any Security Document, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to the Credit
Agreement or any other Loan Document;
(iii) any release, non-perfection or invalidity of any direct or
indirect security for any obligation of the Borrower under the Credit
Agreement or any other Loan Document or any obligation of the Guarantor
hereunder or under any Security Document;
(iv) any change in the corporate existence, structure or
ownership of the Borrower, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Borrower or its assets or any
resulting release or discharge of any obligation of the Borrower contained in
the Credit Agreement or any other Loan Document;
(v) the existence of any claim, set-off or other rights which
any Guarantor may have at any time against the Borrower, any of the Secured
Parties or any other Person, whether in connection herewith or any unrelated
transactions, PROVIDED that nothing herein shall prevent the assertion of any
such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against
the Borrower for any reason of the Credit Agreement or any other Loan
Document or any provision of applicable law or regulation purporting to
prohibit the payment by the Borrower of the principal of or interest on any
Loan (except as otherwise expressly provided in Section 9.13 of the Credit
Agreement) or any other amount payable by the Borrower under the Credit
Agreement or any other Loan Document; or
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(vii) any other act or omission to act or delay of any kind by the
Borrower, any Guarantor, any of the Secured Parties or any other Person or
any other circumstance whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of each Guarantor's
obligations hereunder.
SECTION 5. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN
CERTAIN CIRCUMSTANCES. Each Guarantor's obligations hereunder shall remain
in full force and effect until the principal of and interest on the Loans and
all other amounts payable by the Borrower under the Credit Agreement and any
other Loan Documents shall have been paid in full and the Commitments under
the Credit Agreement shall have terminated or expired. If at any time any
payment of the principal of or interest on any Loan or any other amount
payable by the Borrower under the Credit Agreement or any other Loan Document
is rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, the Guarantor's
obligations hereunder with respect to such payment shall be reinstated as
though such payment had been due but not made at such time.
SECTION 6. WAIVER BY GUARANTOR. Each Guarantor waives acceptance
hereof, presentment, demand, protest and, to the fullest extent permitted by
law, any notice not provided for herein, as well as any requirement that at
any time any action be taken or any recourse exhausted by any Person against
the Borrower, any Guarantor hereunder, or any other Person.
SECTION 7. STAY OF ACCELERATION. If acceleration of the time for
payment of any amount payable by the Borrower under the Credit Agreement is
stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all
such amounts otherwise subject to acceleration under the terms of the Credit
Agreement nonetheless shall be payable by any Guarantor hereunder forthwith
on demand by the Collateral Agent made at the request of the Required Lenders.
SECTION 8. LIMITATION ON GUARANTORS' OBLIGATIONS. Notwithstanding
anything to the contrary set forth herein, the obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the United States Bankruptcy Code or any applicable provisions
of comparable U.S. state law.
SECTION 9. SUBORDINATION.
(a) Each Guarantor agrees that the payment by the Borrower or any other
Guarantor of any indebtedness in favor of such Guarantor (the "Subordinated
Lender") shall be subordinated and subject to the prior payment in full of
all amounts payable by the Borrower or such other Guarantor under the Credit
Agreement or this Guarantee Agreement, as the case may be, and any other Loan
Document to which the Borrower or such Guarantor is a party ("Senior Debt")
upon the terms of this Section.
(b) Upon any distribution of assets of the Borrower or a Guarantor to
creditors upon a liquidation or dissolution of the Borrower or such Guarantor
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Borrower or such Guarantor or its property, (i)
the Secured Parties shall be entitled to receive payment in full of all
Senior Debt
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before the Subordinated Lender shall be entitled to receive any payment of
principal of or interest on or any other amounts in respect of Indebtedness
of the Borrower or such Guarantor in favor of the Subordinated Lender (the
"Subordinated Debt"); and (ii) until payment in full of the Senior Debt, any
distribution of assets of any kind or character to which the Subordinated
Lender would otherwise be entitled shall be paid by the Borrower or such
Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee,
agents or other person making such payment or distribution to, or if received
by the Borrower or such Guarantor, shall be held for the benefit of and shall
be forthwith paid or delivered to, the Collateral Agent for distribution to
the Secured Parties.
(c) If the Subordinated Lender does not file proper claims or proofs of
claim in the form required in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Borrower or such Guarantor
or its property prior to 45 days before the expiration of the time to file
such claims, then (a) upon the request of the Collateral Agent, the
Subordinated Lender shall file such claims and proofs of claim in respect of
this instrument and execute and deliver such powers of attorney, assignments
and other instruments as are required to enable the Secured Parties to
enforce any and all claims upon or in respect of the Subordinated Debt and to
collect and receive any and all payments or distributions which may be
payable or deliverable at any time upon or in respect of Subordinated Debt,
and (b) whether or not the Subordinated Lender shall take the action
described in the preceding clause (a) the Collateral Agent and the other
Secured Parties shall nevertheless be deemed to have such powers of attorney
as may be necessary for them to file appropriate claims and proofs of claim
and otherwise exercise the powers described above.
(d) No right of any Secured Party to enforce the terms of this Section
shall be impaired by any act or failure to act by the Borrower or any
Guarantor. Neither the terms of this Section nor the rights of the rights of
the Secured Parties hereunder shall be affected by any extension, renewal or
modification of the terms of, or the granting of any security in respect of,
any Senior Debt or any exercise or nonexercise of any right, power or remedy
with respect thereto.
(e) After all Senior Debt is paid in full and until Subordinated Debt
is paid in full, the Subordinated Lender shall be subrogated to the rights of
the Secured Parties in respect of the Senior Debt.
(f) Nothing in this Section shall (i) impair, as between the Borrower
or such Guarantor and the Subordinated Lender, the obligation of the Borrower
or such Guarantor, which is absolute and unconditional, to pay the principal
of and interest on Subordinated Debt in accordance with its terms; (ii)
affect the relative rights of the Subordinated Lender and creditors of the
Borrower or such Guarantor other than the Secured Parties; or (iii) prevent
the Subordinated Lender from exercising its available remedies upon an event
of default under the Subordinated Debt, subject to the rights of the Secured
Parties to receive cash, property or other assets otherwise payable to the
Subordinated Lender to the extent set forth in this Section.
SECTION 10. NOTICES. All notices and other communications hereunder to
any party hereto shall be given or made in the manner provided in the Credit
Agreement to such party at its address set forth therein, or in the case of
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any Guarantor other than the Parent, in care of the Borrower at its address
set forth therein, or in the case of any party hereto, to such other address
as such party may have provided by notice to the other parties hereto.
SECTION 11. NO WAIVERS. No failure or delay by the Collateral Agent or
any Lender in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies provided in this
Guarantee Agreement, the Credit Agreement and the Security Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 12. SUCCESSORS AND ASSIGNS. This Guarantee Agreement is in
favor of the Collateral Agent for the benefit of the Secured Parties and
their respective successors and assigns and, in the event of an assignment of
the Loans or other amounts payable under the Credit Agreement or the other
Loan Documents, the rights hereunder, to the extent applicable to the
indebtedness so assigned, may be transferred with such indebtedness. This
Guarantee Agreement shall be binding upon each Guarantor and its successors
and assigns.
SECTION 13. CHANGES IN WRITING. Neither this Guarantee Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only in writing signed by each Guarantor and the Collateral Agent with
the consent of the Required Lenders.
SECTION 14. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; SERVICE OF PROCESS.
(a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(b) Each of the Guarantors hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of
or relating to this Guarantee Agreement, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Guarantee Agreement
shall affect any right that any Secured Party may otherwise have to bring any
action or proceeding relating to this Guarantee Agreement against any
Guarantor or its properties in the courts of any jurisdiction.
(c) Each of the Guarantors hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement in
any court referred to in paragraph (b) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
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(d) Each of the Guarantors hereby irrevocably appoints and designates
CT Corporation System, whose address is 1633 Broadway, New York, New York
10019, or any other person having and maintaining a place of business in the
State of New York whom the Guarantor may from time to time hereafter
designate (having given 30 days' notice thereof to the Collateral Agent), as
the true and lawful attorney and duly authorized agent for acceptance of
service of legal process of the Guarantor. Without prejudice to the
foregoing, each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10. Nothing in this
Agreement or any other Loan Document will affect the right of any party to
this Agreement to serve process in any other manner permitted by law.
SECTION 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 16. WAIVER OF IMMUNITY. To the extent that any Guarantor has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service or notice, attachment prior to
judgment, attachment in aid or execution, or otherwise) with respect to
itself or its property, such Guarantor hereby irrevocably waives such
immunity in respect of its obligations hereunder and under the other
Financing Documents to the extent permitted by applicable law and, without
limiting the generality of the foregoing, agrees that the waivers set forth
in this Section shall have effect to the fullest extent permitted under the
Foreign Sovereign Immunities Act of 1976 of the United States of America and
are intended to be irrevocable for purposes of such Act.
(Signatures Follow on Next Page)
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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
Agreement to be duly executed by its authorized officer as of the day and
year first above written.
GUARANTORS:
JATO COMMUNICATIONS CORP.
By:
---------------------------------------
Name:
Title:
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By:
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Name:
Title:
<PAGE>
EXHIBIT C
[FORM OF INDEMNITY, SUBROGATION
AND CONTRIBUTION AGREEMENT]
INDEMNITY, SUBROGATION
AND CONTRIBUTION AGREEMENT
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT, dated as of July 14,
1999, among JATO COMMUNICATIONS CORP., a Delaware corporation (the "PARENT"),
JATO OPERATING CORP., a Delaware corporation, as borrower (the "BORROWER"),
each of the subsidiaries of the Borrower party hereto (collectively, the
"SUBSIDIARY GUARANTORS"), and STATE STREET BANK AND TRUST COMPANY, as
collateral agent (the "COLLATERAL AGENT") for the Administrative Agent and
the Lenders (such term and each other capitalized term used but not defined
herein having the respective meanings given them in the Credit Agreement,
dated as of July 14, 1999 (as the same may be amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among the
Borrower, the Parent, the Lenders party thereto, the Collateral Agent, and
Lucent Technologies Inc., as administrative agent (the "ADMINISTRATIVE
AGENT").
The Lenders have agreed to make Loans pursuant to, and upon the
terms and subject to the conditions specified in, the Credit Agreement. Each
of the Subsidiary Guarantors has agreed to guarantee, among other things, all
the obligations of the Borrower under the Credit Agreement.
The obligations of the Lenders to make the Loans under the Credit
Agreement are conditioned upon, among other things, the execution and
delivery by the Subsidiary Guarantors of an indemnity, subrogation and
contribution agreement in the form hereof (this "AGREEMENT") to support the
due and punctual payment of, with respect to each Subsidiary Guarantor, its
obligations as obligor or guarantor in respect of (a) the principal of and
interest (including interest accruing at the then applicable rate provided in
the Credit Agreement after the maturity of the Loans thereunder and interest
accruing at the then applicable rate provided in the Credit Agreement after
the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to any Loan Party
thereunder whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) on the Loans payable by the Borrower under the
Credit Agreement, when and as due, whether at maturity, by acceleration, upon
one or more dates set for prepayment or otherwise, and (b) all other amounts
payable by the Borrower from time to time to any of the Secured Parties under
the Credit Agreement or any other Loan Document, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including all fees and disbursements of counsel to any
of the Secured Parties that are required to be paid by the Borrower pursuant
to the terms of the Credit Agreement or such other Loan Document) (all of the
foregoing obligations collectively, the "OBLIGATIONS").
<PAGE>
Accordingly, the Parent and the Borrower, each Subsidiary Guarantor
and the Collateral Agent agree as follows:
SECTION 1. INDEMNITY AND SUBROGATION. In addition to all such
rights of indemnity and subrogation as the Subsidiary Guarantors may have
under applicable law (but subject to Section 3), the Parent and the Borrower
agree that (a) in the event a payment shall be made by any Subsidiary
Guarantor under the Guarantee Agreement, the Parent and the Borrower shall
indemnify such Subsidiary Guarantor for the full amount of such payment and
such Subsidiary Guarantor shall be subrogated to the rights of the person to
whom such payment shall have been made to the extent of such payment and (b)
in the event any assets of any Subsidiary Guarantor shall be sold pursuant to
any applicable security agreement or similar instrument or agreement to
satisfy a claim of any Secured Party, the Parent and the Borrower shall
indemnify such Subsidiary Guarantor in an amount equal to the greater of the
book value or the fair market value of the assets so sold.
SECTION 2. CONTRIBUTION AND SUBROGATION. Each Subsidiary
Guarantor agrees (subject to Section 3) that in the event a payment shall be
made by any Subsidiary Guarantor under the Guarantee Agreement or assets of
any Subsidiary Guarantor shall be sold pursuant to any applicable security
agreement or similar instrument or agreement to satisfy a claim of any
Secured Party, and such Subsidiary Guarantor (the "CLAIMING SUBSIDIARY
GUARANTOR") shall not have been indemnified by the Parent or the Borrower as
provided in Section 1, each other Subsidiary Guarantor (a "CONTRIBUTING
SUBSIDIARY GUARANTOR") shall indemnify the Claiming Subsidiary Guarantor in
an amount equal to the amount of such payment or the greater of the book
value or the fair market value of such assets, as the case may be, multiplied
by a fraction of which the numerator shall be the net worth of the
Contributing Subsidiary Guarantor on the date of the claim and the
denominator shall be the aggregate net worth of all the Subsidiary Guarantors
on the date of the claim. Any Contributing Subsidiary Guarantor making any
payment to a Claiming Subsidiary Guarantor pursuant to this Section 2 shall
be subrogated to the rights of such Claiming Subsidiary Guarantor under
Section 1 to the extent of such payment.
SECTION 3. SUBORDINATION. Notwithstanding any provision of this
Agreement to the contrary, all rights of the Subsidiary Guarantors under
Sections 1 and 2 and all other rights of indemnity, contribution or
subrogation under applicable law or otherwise shall be fully subordinated to
the indefeasible payment in full of the Obligations. No failure on the part
of the Parent, the Borrower or any Subsidiary Guarantor to make the payments
required by Sections 1 and 2 (or any other payments required under applicable
law or otherwise) shall in any respect limit the obligations and liabilities
of any other Subsidiary Guarantor with respect to the Guarantee Agreement,
and each Subsidiary Guarantor shall remain liable for the full amount of the
obligations that such Subsidiary Guarantor has otherwise guaranteed.
SECTION 4. TERMINATION. This Agreement shall terminate when all
the Obligations have been indefeasibly paid in full, and the Lenders have no
further Commitments under the Credit Agreement.
SECTION 5. CONTINUED EFFECTIVENESS. The Parent, the Borrower and
each Subsidiary Guarantor further agree that this Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time the payment
of any Obligation, or any part thereof,
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by the Parent, the Borrower or any Subsidiary Guarantor is rescinded or must
otherwise be restored upon the bankruptcy or reorganization of the Parent,
the Borrower, any Subsidiary Guarantor or otherwise.
SECTION 6. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each of the Parent, the Borrower and each Subsidiary Guarantor
hereby irrevocably and unconditionally submits, for itself and its property,
to the nonexclusive jurisdiction of the Supreme Court of the State of New
York sitting in New York County and of the United States District Court of
the Southern District of New York, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement, or
for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right any party hereto may otherwise have to bring
any action or proceeding relating to this Agreement against any party hereto
or its properties in the courts of any jurisdiction.
(c) Each of the Parent, the Borrower and each Subsidiary Guarantor
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement in any court referred to in paragraph (b) of
this Section. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each of the Parent, the Borrower and each Subsidiary Guarantor
hereby irrevocably appoints and designates CT Corporation System, whose
address is 1633 Broadway, New York, New York 10019, or any other person
having and maintaining a place of business in the State of New York whom the
Parent, the Borrower or the Subsidiary Guarantor may from time to time
hereafter designate (having given 30 days' notice thereof to the other
parties hereto), as the true and lawful attorney and duly authorized agent
for acceptance of service of legal process of such Person. Without prejudice
to the foregoing, each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 8. Nothing
in this Agreement or any other Loan Document will affect the right of any
party to this Agreement to serve process in any other manner permitted by law.
SECTION 7. WAIVERS; AMENDMENT.
(a) No failure or delay of any Secured Party or any Guarantor in
exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power or any
abandonment or discontinuance of steps to enforce
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such a right or power preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and the remedies of the
Secured Parties under the Loan Documents are cumulative and are not exclusive
of any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or consent to any departure by any Subsidiary
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
No notice or demand on any Subsidiary Guarantor in any case shall entitle
such Subsidiary Guarantor to any other or further notice or demand in similar
or other circumstances.
(b) Except for the operation of Section 15 of this Agreement,
neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to a written agreement entered into between the
Subsidiary Guarantors and the Collateral Agent, with the prior written
consent of the Required Lenders.
SECTION 8. NOTICES. All notices and other communications to any
party hereto hereunder shall be given or made in the manner provided in the
Credit Agreement to such party at its address set forth therein, or in the
case of any Subsidiary Guarantor, in care of the Borrower at its address set
forth therein, or in the case of any party hereto, to such other address as
such party may have provided by notice to the other parties hereto.
SECTION 9. BINDING AGREEMENT; ASSIGNMENTS. This Agreement shall
become effective as to any of the Parent, the Borrower and the Subsidiary
Guarantors when a counterpart hereof executed on behalf of such Person shall
have been delivered to the Collateral Agent and a counterpart hereof shall
have been executed on behalf of the Collateral Agent, and thereafter shall be
binding upon such person and the Collateral Agent and their respective
successors and permitted assigns, and shall inure to the benefit of the
Agents and the Lenders, and their respective successors and permitted
assigns, except that no such person shall have the right to assign its rights
hereunder or any interest herein (and any such attempted assignment shall be
void), except as expressly contemplated by this Agreement or the other Loan
Documents.
SECTION 10. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party, and all
covenants, promises and agreements by or on behalf of each of the Parent, the
Borrower, each Subsidiary Guarantor and the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and permitted assigns.
SECTION 11. SURVIVAL OF AGREEMENT; SEVERABILITY.
(a) All covenants, agreements, representations and warranties made
by each of the Parent, the Borrower and each Subsidiary Guarantor herein and
in any certificates or other instruments prepared or delivered in connection
with or pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the Secured Parties and each
Subsidiary Guarantor and shall survive the making by the Lenders of the Loans
and the execution and delivery to the Lenders of the Loan Documents,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect as long as the
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principal of or any accrued interest on any Loan or any fee or any other
amount payable under, or in respect of, this Agreement or under any of the
other Loan Documents is outstanding and unpaid and so long as the Commitments
have not been terminated.
(b) If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of the Collateral Agent and the
other Secured Parties in order to carry out the intentions of the parties
hereto as nearly as may be possible; and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 12. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument.
SECTION 13. RULES OF INTERPRETATION. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 14.
SECTION 15. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to Section
5.14 of the Credit Agreement, each Subsidiary (an "ADDITIONAL SUBSIDIARY")
that was not in existence or not a subsidiary on the date thereof is required
to enter into this Agreement as a Subsidiary Guarantor upon becoming a
subsidiary. Upon execution and delivery, after the date hereof, by the
Collateral Agent and an Additional Subsidiary of an instrument in the form of
Annex 1, such Additional Subsidiary shall become a Subsidiary Guarantor
hereunder with the same force and effect as if originally named as a
Subsidiary Guarantor hereunder. The execution and delivery of any such
instrument shall not require the consent of any Subsidiary Guarantor
hereunder. The rights and obligations of each Subsidiary Guarantor hereunder
shall remain in full force and effect notwithstanding the addition of any
Additional Subsidiary as a party to this Agreement.
5
<PAGE>
SECTION 16. HEADINGS. Article and Section headings used herein are
for convenience of reference only, are not part of this Agreement and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
(Signatures Follow on Next Page)
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indemnity,
Subrogation and Contribution Agreement to be executed by their duly
authorized officers as of the date first appearing above.
JATO COMMUNICATIONS CORP.
By:
------------------------------------
Name:
Title:
JATO OPERATING CORP.
By:
------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as Collateral
Agent
By
-------------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
TO INDEMNITY SUBROGATION
AND CONTRIBUTION AGREEMENT
SUBSIDIARY GUARANTORS
None.
<PAGE>
ANNEX I TO
INDEMNITY, SUBROGATION
AND CONTRIBUTION AGREEMENT
SUPPLEMENT NO. _____, dated as of [__________________], to the
Indemnity, Subrogation and Contribution Agreement, dated as of as of July 14,
1999 (the "INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT"), among JATO
COMMUNICATIONS CORP., a Delaware corporation (the "PARENT"), JATO OPERATING
CORP., a Delaware corporation (the "BORROWER"), each of the Subsidiary
Guarantors (each capitalized term used but not defined having the meaning
given it in the Indemnity, Subrogation and Contribution Agreement or the
Credit Agreement (defined below)) party thereto and STATE STREET BANK AND
TRUST COMPANY, as Collateral Agent (the "COLLATERAL AGENT") for the Lenders.
A. Reference is made to the Credit Agreement, dated as of July
14, 1999 (as the same may be amended, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Borrower, the Parent, the
Lenders party thereto, the Collateral Agent, and Lucent Technologies Inc., as
the Administrative Agent.
B. Certain Subsidiary Guarantors, among others, have entered into
the Indemnity, Subrogation and Contribution Agreement in order to induce the
Lenders to make Loans pursuant to, and upon the terms and subject to the
conditions specified in, the Credit Agreement. Pursuant to Section 5.14 of
the Credit Agreement, promptly after its creation or acquisition, each
Additional Subsidiary is required to become a party to the Indemnity,
Subrogation and Contribution Agreement as a Subsidiary Guarantor. Section 15
of the Indemnity, Subrogation and Contribution Agreement provides that
Additional Subsidiaries may become Subsidiary Guarantors under the Indemnity,
Subrogation and Contribution Agreement by execution and delivery of an
instrument in the form of this Supplement. The undersigned (the "NEW
SUBSIDIARY GUARANTOR") is an Additional Subsidiary and is executing this
Supplement in accordance with the requirements of the Credit Agreement to
become a Subsidiary Guarantor under the Indemnity, Subrogation and
Contribution Agreement in order to induce the Lenders to make additional
Loans and as consideration for Loans previously made.
Accordingly, the Collateral Agent and the New Subsidiary Guarantor
agree as follows:
SECTION 1. In accordance with Section 15 of the Indemnity,
Subrogation and Contribution Agreement, the New Subsidiary Guarantor by its
signature below becomes a Subsidiary Guarantor under the Indemnity,
Subrogation and Contribution Agreement with the same force and effect as if
originally named therein as a Subsidiary Guarantor and the New Subsidiary
Guarantor hereby agrees to all the terms and provisions of the Indemnity,
Subrogation and Contribution Agreement applicable to it as a Subsidiary
Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in the
Indemnity, Subrogation and Contribution Agreement shall be deemed to include
the New Subsidiary Guarantor. The Indemnity, Subrogation and Contribution
Agreement is hereby incorporated herein by reference.
<PAGE>
SECTION 2. The New Subsidiary Guarantor represents and warrants to
the Lenders and the Agents that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, subject to
the effects of applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and equitable principles of general applicability.
SECTION 3. This Supplement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument. This Supplement
shall become effective when the Collateral Agent shall have received
counterparts of this Supplement that, when taken together, bear the
signatures of the New Subsidiary Guarantor and the Collateral Agent.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. If any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so
long as such provision is held to be invalid, illegal or unenforceable, but
the validity, legality and enforceability of the remaining provisions
contained herein and in the Indemnity, Subrogation and Contribution Agreement
shall not in any way be affected or impaired. The parties hereto shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7. All notices and other communications hereunder to any
party to the Indemnity, Subrogation and Contribution Agreement shall be given
or made in the manner provided in the Credit Agreement to such party at its
address set forth therein, or in the case of any New Subsidiary Guarantor, in
care of the Borrower at its address set forth therein, or in the case of any
party hereto, to such other address as such party may have provided by notice
to the other parties hereto.
2
<PAGE>
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Collateral
Agent have duly executed this Supplement to the Indemnity, Subrogation and
Contribution Agreement as of the day and year first above written.
[NAME OF NEW SUBSIDIARY
GUARANTOR]
By:
------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as Collateral
Agent
By:
------------------------------------
Name
Title:
3
<PAGE>
EXHIBIT D
[FORM OF SECURITY AGREEMENT (BORROWER)]
SECURITY AGREEMENT (BORROWER)
This SECURITY AGREEMENT (BORROWER), dated as of July 14, 1999, is made
between JATO OPERATING CORP., a Delaware corporation (with its successors,
the "Company") and STATE STREET BANK AND TRUST COMPANY, as Collateral Agent
for the Administrative Agent and the Lenders (each term as defined below)
(with its successors in such capacity, the "Collateral Agent").
WITNESSETH:
WHEREAS, the Company, Jato Communications Corp. (the "Parent"), certain
lenders (the "Lenders"), the Collateral Agent, and Lucent Technologies Inc.,
as administrative agent (the "Administrative Agent"), are parties to a Credit
Agreement dated as of July 14, 1999 (as the same may be amended, restated or
supplemented and in effect from time to time, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of
credit to be made by the Lenders to the Company;
WHEREAS, in order to induce the Lenders and the Administrative Agent to
enter into the Credit Agreement, the Company has agreed to grant a continuing
security interest in and to the Collateral (as defined below) to secure its
obligations under the Loan Documents (as defined below), including, without
limitation, its obligations under the Credit Agreement; and
WHEREAS, the Lenders have appointed the Collateral Agent to act as their
collateral agent in connection with the foregoing transactions;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and
not otherwise defined herein have, as used herein, the respective meanings
provided for therein. The following additional terms, as used herein, have
the following respective meanings:
"ACCOUNTS" means all "ACCOUNTS" (as defined in the UCC) now owned or
hereafter acquired by the Company and shall also mean and include all
accounts receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Company arising from the sale, lease
or exchange of goods or other property by it or the performance of services
by it or both (including, without limitation, any such obligation which might
be characterized as an account, contract right or general intangible under
the Uniform Commercial Code in effect in any jurisdiction) and all of the
Company's rights in, to and under all purchase orders for goods, services or
other property, and all of the Company's rights to any goods,
<PAGE>
services or other property represented by any of the foregoing (including
returned or repossessed goods and unpaid sellers' rights of rescission,
replevin, reclamation and rights to stoppage in transit) and all monies due
to or to become due to the Company under all contracts for the sale, lease or
exchange of goods or other property or the performance of services by it or
both (whether or not yet earned by performance on the part of the Company),
in each case whether now in existence or hereafter arising or acquired
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts and all collateral security and guarantees of
any kind given by any Person with respect to any of the foregoing.
"COLLATERAL" has the meaning set forth in Section 3(a).
"COLLATERAL ACCOUNT" has the meaning set forth in Section 5(a).
"COPYRIGHT LICENSE" means any agreement now or hereafter in existence
granting to the Company, or pursuant to which the Company has granted to any
other Person, any right to use, copy, reproduce, distribute, prepare
derivative works, display or publish any records or other materials on which
a Copyright is in existence or may come into existence.
"COPYRIGHT SECURITY AGREEMENT" means a Copyright Security Agreement
executed and delivered by the Company in favor of the Collateral Agent, for
the benefit of the Secured Parties, substantially in the form of Exhibit D
hereto, as the same may be amended from time to time.
"COPYRIGHTS" means all the following: (i) all copyrights under the laws
of the United States or any other country (whether or not the underlying
works of authorship have been published), all registrations and recordings
thereof, all intellectual property rights to works of authorship (whether or
not published), and all applications for copyrights under the laws of the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Copyright
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, (ii) all
reissues, renewals and extensions thereof, (iii) all claims for, and rights
to sue for, past or future infringements of any of the foregoing, and (iv)
all income, royalties, damages and payments now or hereafter due or payable
with respect to any of the foregoing, including, without limitation, damages
and payments for past or future infringements thereof.
"DEPOSIT ACCOUNTS" shall mean all deposit accounts (as defined in the
UCC) of the Company including, without limitation, any demand, time, savings,
passbook or like account maintained by the Company with any bank, savings and
loan association, credit union or like organization, and all money, cash and
cash equivalents of the Company, whether or not deposited in any such deposit
account, and all certificates and instruments, if any, from time to time
representing, evidencing or deposited into such accounts.
"DOCUMENTS" means all "DOCUMENTS" (as defined in the UCC) or other
receipts covering, evidencing or representing goods, now owned or hereafter
acquired, by the Company.
"EQUIPMENT" means all "EQUIPMENT" (as defined in the UCC) now owned or
hereafter acquired by the Company, including, without limitation, all motor
vehicles, trucks, and trailers other than equipment acquired in connection
with Indebtedness of the type permitted under Section 6.01(iv) of the Credit
Agreement.
2
<PAGE>
"EXCLUDED CONTRACTS" shall mean one or more contracts which by their
terms would be breached by the grant of the security interests created
therein pursuant to the terms of this Agreement or with respect to which the
granting of a security interest is prohibited under applicable law (it being
understood and agreed, however, that notwithstanding the foregoing, all
rights to payment for money due or to become due pursuant to any Excluded
Contract shall be subject to the security interests created pursuant to this
Agreement).
"GENERAL INTANGIBLES" means all "GENERAL INTANGIBLES" (as defined in the
UCC) now owned or hereafter acquired by the Company, including, without
limitation, (i) all obligations or indebtedness owing to the Company (other
than Accounts) from whatever source arising, (ii) all Copyright Licenses,
Copyrights, Patent Licenses, Patents, Trademark Licenses, Trademarks, rights
in intellectual property, goodwill, trade names, service marks, trade
secrets, permits and licenses, (iii) all rights or claims in respect of
refunds for taxes paid and (iv) all rights in respect of any pension plan or
similar arrangement maintained for employees of any member of the Loan
Parties other than general intangibles acquired in connection with
Indebtedness of the type permitted under Section 6.01(iv) of the Credit
Agreement.
"INSTRUMENTS" means all "INSTRUMENTS", "CHATTEL PAPER" or "LETTERS OF
CREDIT" (each as defined in the UCC) evidencing, representing, arising from
or existing in respect of, relating to, securing or otherwise supporting the
payment of, any of the Accounts, including (but not limited to) promissory
notes, drafts, bills of exchange and trade acceptances, now owned or
hereafter acquired by the Company, but Instruments shall exclude Instruments
representing Indebtedness to the extent pledged pursuant to the Pledge
Agreement (Borrower).
"INVENTORY" means all "INVENTORY" (as defined in the UCC), now owned or
hereafter acquired by the Company, wherever located, and shall also mean and
include, without limitation, all raw materials and other materials and
supplies, work-in-process and finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or added
thereto other than inventory acquired in connection with Indebtedness of the
type permitted under Section 6.01(iv) of the Credit Agreement.
"INVESTMENT PROPERTY" shall mean and include all of the Company's
investment property (as defined in the UCC) and all of the Company's other
securities (whether certificated or uncertificated), security entitlements,
financial assets, securities accounts, commodity contracts, and commodity
accounts (as each such term is defined in the UCC), including all
substitutions and additions thereto, all dividends, distributions and sums
distributable or payable from, upon, or in respect of such property, and all
rights and privileges incident to such property, but Investment Property
shall exclude the Company's interest in its Subsidiaries to the extent
pledged pursuant to the Pledge Agreement (Borrower).
"LICENSES" means any license, approval or other authorization issued by
the Federal Communications Commission or any state public utility commission
or any other Governmental Authority having jurisdiction over the
telecommunications business.
"LIQUID INVESTMENTS" means an investment meeting the criteria set forth
in Section 5(e).
3
<PAGE>
"LOCKBOX ACCOUNT" means a "Lockbox Account" established under a Lockbox
Agreement.
"LOCKBOX AGREEMENT" means a Lockbox Agreement among the Company, the
Collateral Agent and a Lockbox Bank substantially in the form of Exhibit F
hereto or otherwise in form and substance reasonably satisfactory to the
Collateral Agent.
"LOCKBOX BANK" means a "money center" commercial bank selected by the
Company and satisfactory to the Collateral Agent, and each such other bank as
may from time to time enter into a Lockbox Agreement.
"PATENT LICENSE" means any agreement now or hereafter in existence
granting to the Company, or pursuant to which the Company has granted to any
other Person, any right with respect to any Patent or any invention now or
hereafter in existence, whether patentable or not, whether a patent or
application for patent is in existence on such invention or not, and whether
a patent or application for patent on such invention may come into existence,
including, without limitation, the agreements identified in Schedule I to
Exhibit B hereto.
"PATENTS" means all the following: (i) all letters patent and design
letters patent of the United States or any other country and all applications
for letters patent and design letters patent of the United States or any
other country, including, without limitation, applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, including, without limitation, those described in
Schedule I to Exhibit B hereto, (ii) all reissues, divisions, continuations,
continuations-in-part, renewals and extensions thereof, (iii) all claims for,
and rights to sue for, past or future infringements of any of the foregoing
and (iv) all income, royalties, damages and payments now or hereafter due or
payable with respect to any of the foregoing, including, without limitation,
damages and payments for past or future infringements thereof.
"PATENT SECURITY AGREEMENT" means a Patent Security Agreement executed
and delivered by the Company in favor of the Collateral Agent, for the
benefit of the Secured Parties, substantially in the form of Exhibit B
hereto, as the same may be amended from time to time.
"PERFECTION CERTIFICATE" means a certificate substantially in the form
of Exhibit A hereto, completed and supplemented with the schedules and
attachments contemplated thereby to the satisfaction of the Collateral Agent,
and duly executed by any authorized officer of the Company.
"PERMITTED LIENS" means the Security Interests and the other Liens on
the Collateral permitted to be created, assumed or exist pursuant to Section
6.02 of the Credit Agreement.
"PROCEEDS" means all proceeds of, and all other profits, products,
rentals or receipts, in whatever form, arising from the collection, sale,
lease, exchange, assignment, licensing or other disposition of, or other
realization upon, collateral, including, without limitation, all claims of
the Company against third parties for loss of, damage to or destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies
of insurance in respect of, any collateral,
4
<PAGE>
and any condemnation or requisition payments with respect to any collateral,
in each case whether now existing or hereafter arising.
"SECURED OBLIGATIONS" means the obligations secured under this
Agreement, including (a) all principal of and interest (including, without
limitation, any interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company, whether or not allowed or allowable as a claim
in any such case, proceeding or other action) on any Loan to the Company
under the Credit Agreement; (b) all other amounts payable by the Company
hereunder or under any other Loan Document; and (c) any renewals or
extensions of any of the foregoing.
"SECURED PARTIES" means (i) the Lenders, (ii) the Administrative Agent
and (iii) the Collateral Agent.
"SECURITY INTERESTS" means the security interests granted pursuant to
Section 3, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"TRADEMARK LICENSE" means any agreement now or hereafter in existence
granting to the Company, or pursuant to which the Company has granted to any
other Person, any right to use any Trademark, including, without limitation,
the agreements identified on Schedule I to Exhibit C hereto.
"TRADEMARKS" means all of the following: (i) all trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos, brand names, trade dress, prints
and labels on which any of the foregoing have appeared or appear, package and
other designs, and any other source or business identifiers, and general
intangibles of like nature, and the rights in any of the foregoing which
arise under applicable law, (ii) the goodwill of the business symbolized
thereby or associated with each of them, (iii) all registrations and
applications in connection therewith, including, without limitation,
registrations and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, (iv) all
reissues, extensions and renewals thereof, (v) all claims for, and rights to
sue for, past or future infringements of any of the foregoing and (vi) all
income, royalties, damages and payments now or hereafter due or payable with
respect to any of the foregoing, including, without limitation, damages and
payments for past or future infringements thereof.
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security Agreement
executed and delivered by the Company in favor of the Collateral Agent, for
the benefit of the Secured Parties, substantially in the form of Exhibit C
hereto, as the same may be amended from time to time.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York; PROVIDED that if by reason of mandatory provisions
of law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than New York, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such perfection or effect of perfection
or non-perfection.
5
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants as follows:
(a) The Company has good and marketable title to all of the Collateral,
free and clear of any Liens other than the Permitted Liens. All actions have
been taken that are necessary under the UCC to perfect its interest in any
Accounts in which it has an interest, as against its assignors and creditors
of its assignors.
(b) The Company has not performed any acts which might prevent the
Collateral Agent from enforcing any of the terms of this Agreement or which
would limit the Collateral Agent in any such enforcement. Other than
financing statements or other similar or equivalent documents or instruments
with respect to the Security Interests and Permitted Liens, no financing
statement, mortgage, security agreement or similar or equivalent document or
instrument covering all or any part of the Collateral is on file or of record
in any jurisdiction in which such filing or recording would be effective to
perfect a Lien on such Collateral. No Collateral is in the possession of any
Person (other than the Company) asserting any claim thereto or security
interest therein, except that the Collateral Agent or its designee may have
possession of Collateral as contemplated hereby.
(c) Not later than the date of the first borrowing under the Credit
Agreement, the Company shall deliver the Perfection Certificate to the
Collateral Agent. The information set forth therein shall be correct and
complete. Not later than 60 days following the date of the first Borrowing,
the Company shall furnish to the Collateral Agent file search reports from
each filing office set forth in Schedule 7 to the Perfection Certificate or
other evidence satisfactory to the Collateral Agent, acting on behalf of the
Required Lenders confirming the filing information set forth in such Schedule.
(d) The Security Interests constitute valid security interests under
the UCC securing the Secured Obligations to the extent that a security
interest may be created in the Collateral under the UCC. When the Patent
Security Agreement and the Trademark Security Agreement have been filed with
the United States Patent and Trademark Office, the Security Interests shall
constitute perfected security interests in all right, title and interest of
the Company in Patents or Trademarks, prior to all other Liens and rights of
others therein except for Permitted Liens to the extent that a perfected
security interest may be created in such Collateral under the U.S. Patent Act
or the Lanham Act. When the Copyright Security Agreement has been filed with
the United States Copyright Office, the Security Interests shall constitute
perfected security interests in all right, title and interest of the Company
in Copyrights, prior to all other Liens and rights of others therein except
for the Permitted Liens to the extent that a perfected security interest may
be created in such Collateral under the U.S. Copyright Act.
(e) Other than those listed on Schedule I to the Copyright Security
Agreement, Schedule I to the Trademark Security Agreement, and Schedule I to
the Patent Security Agreement delivered on the date hereof (as the same may
be modified from time to time), the Company has no Copyright Licenses,
Copyrights, Patent Licenses, Patents, Trademark Licenses or Trademarks.
6
<PAGE>
SECTION 3. THE SECURITY INTERESTS. (a) In order to secure the full
and punctual payment of the Secured Obligations in accordance with the terms
thereof, and to secure the performance of all of the obligations of the
Company hereunder and under the other Loan Documents, the Company hereby
pledges, hypothecates, assigns by way of security, transfers and grants to
the Collateral Agent for the ratable benefit of the Secured Parties a
continuing security interest in and to all right, title and interest of the
Company in and to the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "Collateral"):
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) Investment Property;
(viii) Deposit Accounts;
(ix) The Collateral Account, all cash deposited therein from time
to time, the Liquid Investments made pursuant to Section 5(e) and other
monies and property of any kind of the Company in the possession or under the
control of the Collateral Agent;
(x) All books and records (including, without limitation,
customer lists, marketing information, credit files, price lists, operating
records, vendor and supplier price lists, sales literature, computer
programs, printouts and other computer materials and records) of the Company
pertaining to any of the Collateral;
(xi) All Proceeds of, attachments or accessions to, or
substitutions for, all or any of the Collateral described in clauses (i)
through (x) hereof;
PROVIDED, HOWEVER, the Collateral shall not include any Excluded Contracts.
(b) The Security Interests are granted as security only and shall not
subject the Collateral Agent or any other Secured Party to, or transfer or in
any way affect or modify, any obligation or liability of the Company with
respect to any of the Collateral or any transaction in connection therewith.
(c) Notwithstanding anything herein or in the other Loan Documents to
the contrary, to the extent this Agreement or any other Security Document
purports to grant to the Collateral Agent a Lien in any License held directly
or indirectly by the Company or any of its Subsidiaries, now owned or
hereafter acquired, the Collateral Agent shall only have a Lien in
7
<PAGE>
such Licenses at such times and to the extent that a Lien in such Licenses is
permitted under applicable law; PROVIDED, that any such Lien shall to the
extent permitted by applicable law be deemed effective as of the later of (i)
the Effective Date or (ii) the date on which the Company was assigned, or
acquired control over, the applicable License.
SECTION 4. FURTHER ASSURANCES; COVENANTS. (a) (i) The Company
will not establish or change (A) the location of its chief executive office
or its chief place of business or (B) except for sales in the ordinary course
of business, the locations where it keeps or holds any Collateral or records
relating thereto from the applicable location described in the Perfection
Certificate unless it shall have given the Collateral Agent notice thereof
and an opinion of counsel with respect thereto in accordance with Section
4(k). The Company shall not in any event change the location of any
Collateral if such change would cause the Security Interests in such
Collateral to lapse or cease to be perfected.
(ii) The Company will not change its name, identity or corporate
structure (except as expressly permitted in the Credit Agreement) in any
manner unless it shall have given the Collateral Agent prior notice thereof
and delivered an opinion of counsel with respect thereto in accordance with
Section 4(k).
(b) The Company will, from time to time, at its expense, execute,
deliver, file and record any statement, assignment, instrument, document,
agreement or other paper and take any other action (including, without
limitation, any filings with the United States Patent and Trademark Office
(including without limitation, a Patent Security Agreement and a Trademark
Security Agreement), any filings with the United States Copyright Office
(including without limitation a Copyright Security Agreement), any filings of
financing or continuation statements under the UCC and any filings in, or
agreements governed by the laws of, any foreign jurisdictions) that from time
to time may be necessary or desirable, or that the Collateral Agent
reasonably may request, in order to create, preserve, upgrade in rank (to the
extent required hereby), perfect, confirm or validate the Security Interests
or to enable the Collateral Agent and the other Secured Parties to obtain the
full benefits of this Agreement, or to enable the Collateral Agent to
exercise and enforce, or facilitate the exercise and enforcement of, any of
its rights, powers and remedies hereunder with respect to any of the
Collateral. To the extent permitted by law, the Company hereby authorizes
the Collateral Agent to execute and file financing statements or continuation
statements without the Company's signature appearing thereon. The Company
agrees that a carbon, photographic or other reproduction of this Agreement or
of a financing statement is sufficient as a financing statement. The Company
shall pay the costs of, or incidental to, any recording or filing of any
financing or continuation statements concerning the Collateral.
(c) If any Collateral is at any time in the possession or control of
any warehouseman, bailee or any of the Company's agents or processors, the
Company shall, upon the request of the Collateral Agent acting on the
instructions of the Required Lenders, notify such warehouseman, bailee, agent
or processor of the Security Interests created hereby and instruct such
Person to hold all such Collateral for the Collateral Agent's account subject
to the Collateral Agent's instructions.
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(d) The Company shall keep full and accurate books and records relating
to the Collateral, and stamp or otherwise mark such books and records in such
manner as the Required Lenders may reasonably request in order to reflect the
Security Interests. The Company shall provide the Collateral Agent with
reasonable access to such books and records during normal business hours in
accordance with Section 5.08 of the Credit Agreement.
(e) The Company will immediately deliver and pledge each Instrument
constituting Collateral to the Collateral Agent (other than checks and drafts
constituting payments in respect of Accounts, as to which the provisions of
Section 5(b) shall apply), in each case appropriately endorsed to the
Collateral Agent; PROVIDED that so long as no Event of Default (as defined
under the Credit Agreement) shall have occurred and be continuing, the
Company may retain any Instruments (i) that in the aggregate have a principal
or face amount of $1,000 or less or (ii) in which a security interest has
been and continues to be effectively created and perfected in favor of the
Collateral Agent under the other Security Documents, and the Collateral Agent
shall, promptly upon request of the Company, make appropriate arrangements
for making any Instrument pledged by the Company and delivered to the
Collateral Agent available to it for purposes of presentation, collection or
renewal (any such arrangement to be effected, to the extent deemed
appropriate to the Collateral Agent, against trust receipt or like document).
All certificates or instruments representing or evidencing Investment
Property (other than Investment Property held by a securities intermediary, a
commodities intermediary or another financial intermediary) shall be
delivered to and held by or on behalf of the Collateral Agent, for the
ratable benefit of the Secured Parties, pursuant hereto and shall be in
suitable form for transfer by delivery, duly endorsed and shall be
accompanied by undated duly executed instruments of transfer or assignment in
blank, with signatures appropriately guaranteed, and accompanied in each case
by any required transfer tax stamps, all in form and substance satisfactory
to the Collateral Agent. With respect to any Investment Property held by a
securities intermediary, commodity intermediary or other financial
intermediary of any kind, the Company shall execute and deliver, and shall
cause any such intermediary to execute and deliver, a securities control
agreement ("Securities Control Agreement") among the Company, the Collateral
Agent, and such intermediary substantially in the form of Exhibit G which
provides, among other things, for the intermediary's agreement that it will
comply with such entitlement orders, and apply any value distributed on
account o any Investment Property maintained in an account with such
intermediary, as directed by the Collateral Agent without further consent by
the Company. The Collateral Agent shall have the right, at any time in its
discretion and without notice to the Company after the occurrence and during
the continuance of an Event of Default, to cause any or all of the Investment
Property to be transferred of record into the name of the Collateral Agent or
its nominee.
(f) The Company shall use its best efforts to cause to be collected
from its account debtors, as and when due, any and all amounts owing under or
on account of each Account constituting Collateral (including, without
limitation, Accounts which are delinquent, such Accounts to be collected in
accordance with lawful collection procedures) and to apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding
balance of such Account. Unless an Event of Default (as defined under the
Credit Agreement) has occurred and is continuing and the Collateral Agent is
exercising its rights hereunder to collect Accounts, the Company may allow in
the ordinary course of business as adjustments to amounts owing under its
Accounts constituting Collateral (i) an extension or renewal of the time or
times of payment,
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or settlement for less than the total unpaid balance, which the Company finds
appropriate in accordance with sound business judgment and (ii) a refund or
credit due as a result of returned or damaged merchandise or deficient
service, all in accordance with the Company's ordinary course of business
consistent with its historical collection practices. The costs and expenses
(including, without limitation, reasonable attorney's fees) of collection,
whether incurred by the Company or the Collateral Agent, shall be borne by
the Company.
(g) Upon the occurrence and during the continuance of any Event of
Default under the Credit Agreement, upon the request of the Required Lenders
acting through the Collateral Agent, the Company will promptly notify (and
the Company hereby authorizes the Collateral Agent so to notify) each account
debtor in respect of any Account or Instrument constituting Collateral that
such Collateral has been assigned to the Collateral Agent hereunder, and that
any payments due or to become due in respect of such Collateral are to be
made directly to the Collateral Agent or its designee.
(h) The Company shall, (i) as soon as practicable after the date
hereof, in the case of Equipment now owned constituting goods in which a
security interest is perfected by a notation on the certificate of title or
similar evidence of the ownership of such goods (unless such security
interest may otherwise be perfected and is so perfected), and (ii) within 10
days of acquiring any other similar Equipment, in each case, (a) having a
value in excess of $25,000 or (b) having a value in excess of $10,000, if the
aggregate of all such items owned by the Company at any time is greater than
$50,000, deliver to the Collateral Agent any and all certificates of title,
applications for title or similar evidence of ownership of such Equipment and
shall cause the Collateral Agent to be named as lienholder on any such
certificate of title or other evidence of ownership. The Company shall
promptly inform the Collateral Agent of any additions to or deletions from
such Equipment in excess of $10,000. The Company shall not permit any items
of Equipment to become a fixture to real estate..
(i) The Company will, promptly upon request, provide to the Collateral
Agent all information and evidence it may reasonably request concerning the
Collateral, and in particular the Accounts, to enable the Collateral Agent to
enforce the provisions of this Agreement.
(j) The Company shall notify the Collateral Agent immediately if it
knows, or has reason to know, that any application or registration relating
to any Material Copyright, Material Patent or Material Trademark may become
abandoned, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in,
any proceeding in the United States Copyright Office, the United States
Patent and Trademark Office, or any court) regarding the Company's ownership
of any Material Copyright, Material Patent or Material Trademark, its right
to register or patent the same, or to keep and maintain the same. For
purposes of this Section 4(j), "Material Patent", "Material Trademark" and
"Material Copyright" shall mean one or more Copyrights, Patents or
Trademarks, respectively, which individually has a fair market value in
excess of $10,000 or are individually or in the aggregate otherwise material
to the business of the Company. In the event that any right to any
Copyright, Copyright License, Patent, Patent License, Trademark or Trademark
License is infringed, misappropriated or diluted by a third party, the
Company shall notify the Collateral Agent promptly after it learns thereof
and shall, unless the Company shall reasonably determine that any such action
would be of negligible economic value, promptly sue
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for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and take such
other actions as the Company shall reasonably deem appropriate under the
circumstances to protect such Copyright, Copyright License, Patent, Patent
License, Trademark or Trademark License. In no event shall the Company,
either itself or through any agent, employee or licensee, file an application
for the registration of any Copyright with the United States Copyright Office
or any Material Patent or Material Trademark with the United States Patent
and Trademark Office, or with any similar office or agency in any other
country or any political subdivision thereof, unless not less than 30 days
prior thereto it informs the Collateral Agent, and, upon request of the
Collateral Agent, executes and delivers any and all agreements, instruments,
documents and papers the Collateral Agent may request to evidence the
Security Interests in such Copyright, Patent or Trademark and the goodwill
and general intangibles of the Company relating thereto or represented
thereby, and the Company hereby constitutes the Collateral Agent its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power, being coupled with an interest, shall be irrevocable until the Secured
Obligations are paid in full.
(k) Not more than four months nor less than 10 days prior to each date
on which the Company proposes to take any action contemplated by Section
4(a)(i) or (ii), the Company shall, at its cost and expense, cause to be
delivered to the Secured Parties an opinion of counsel satisfactory to the
Collateral Agent (the Company's general counsel being deemed to be
satisfactory unless the Collateral Agent notifies the Company otherwise), to
the effect of Exhibit E hereto and in a form and substance reasonably
satisfactory to the Administrative Agent, to the effect that all financing
statements and amendments or supplements thereto, continuation statements and
other documents required to be recorded or filed in order to perfect and
protect the Security Interests for a period, specified in such opinion,
continuing until a date not earlier than eighteen months from the date of
such opinion, against all creditors of and purchasers from the Company have
been filed in each filing office necessary for such purpose and that all
filing fees and taxes, if any, payable in connection with such filings have
been paid in full (except as noted therein with respect to any continuation
statements to be filed within such period).
SECTION 5. COLLATERAL ACCOUNT AND LOCKBOX ACCOUNT. If requested by the
Collateral Agent at any time following the occurrence of an Event of Default
(whether or not such Event of Default is subsequently cured), the following
provisions of this Section shall become effective and the Company shall take
all necessary action to give effect thereto:
(a) The Company shall establish with the Collateral Agent or a
commercial bank designated by the Collateral Agent a cash collateral account
(such account, together with any additional account so established for such
purpose from time to time, the "Collateral Account") in the name and under
the control of the Collateral Agent into which there shall be deposited from
time to time the cash proceeds of the Collateral required to be delivered to
the Collateral Agent pursuant to subsection (d) of this Section 5 or any
other provision of this Agreement or any other Loan Document. Any income
received by the Collateral Agent with respect to the balance from time to
time standing to the credit of the Collateral Account, including any interest
or capital gains on Liquid Investments, shall remain, or be deposited, in the
Collateral Account. All right, title and interest in and to the cash amounts
on deposit from time to time in the Collateral Account together with any
Liquid Investments from time to time made pursuant to
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subsection (e) of this Section shall vest in the Collateral Agent, shall
constitute part of the Collateral hereunder and shall not constitute payment
of the Secured Obligations until applied thereto as hereinafter provided.
(b) The Company shall deliver to the Collateral Agent counterparts of
the Lockbox Agreement executed and delivered on behalf of the Company and the
Lockbox Bank. The Company shall instruct all account debtors and other
Persons obligated in respect of all Accounts to make all payments in respect
of such Accounts constituting Collateral directly to the Lockbox Bank (by
instructing that such payments be remitted to the Post Office Box referred to
in the Lockbox Agreement with the Lockbox Bank). In addition to the
foregoing, the Company agrees that if the proceeds of any Collateral
hereunder (including the payments made in respect of such Accounts) shall be
received by it, the Company shall as promptly as possible deposit such
proceeds into the Lockbox Account. Until so deposited, all such proceeds
shall be held in trust by the Company for and as the property of the
Collateral Agent and the Secured Parties and shall not be commingled with any
other funds or property of the Company.
(c) The balance from time to time standing to the credit of the Lockbox
Account shall, except upon the occurrence and continuation of an Event of
Default (as defined under the Credit Agreement), be distributed to the
Company upon the order of the Company. Amounts on deposit in the Lockbox
Account shall, except upon the occurrence and continuation of an Event of
Default, be invested and re-invested from time to time in Permitted
Investments as the Company shall determine.
(d) Upon the occurrence and continuation of an Event of Default (as
defined under the Credit Agreement), the Collateral Agent shall, if so
instructed by the Required Lenders, (i) deliver a Stop Transfer Notice (as
defined in the Lockbox Agreement) to the Lockbox Bank and instruct the
Lockbox Bank to transfer to the Collateral Account all funds then and
thereafter standing to the credit of the Lockbox Account with the Lockbox
Bank and (ii) apply or cause to be applied (subject to collection) any or all
of the balance from time to time standing to the credit of the Collateral
Account and such Lockbox Account in the manner specified in Section 9.
(e) Amounts on deposit in the Collateral Account and, during the
continuance of an Event of Default, the Lockbox Account shall be invested and
re-invested from time to time in such Liquid Investments as the Company shall
determine, which Liquid Investments shall be held in the name and be under
the control of the Collateral Agent, provided that, if an Event of Default
has occurred and is continuing, the Collateral Agent shall, if instructed by
the Required Lenders, liquidate any such Liquid Investments and apply or
cause to be applied the proceeds thereof to the payment of the Secured
Obligations in the manner specified in Section 9. For this purpose, (i) each
Liquid Investment shall mature within 30 days after it is acquired by the
Collateral Agent and (ii) in order to provide the Collateral Agent, for the
benefit of the Secured Parties, with a perfected security interest therein,
each Liquid Investment shall be either:
(i) evidenced by negotiable certificates or instruments, or
if non-negotiable then issued in the name of the Collateral Agent, which
(together with any appropriate instruments of transfer) are delivered to,
and held by, the Collateral Agent or an agent thereof (which shall not be
the Company or any of its Affiliates) in the State of New York or the
Commonwealth of Massachusetts; or
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(ii) in book-entry form and issued by the United States and
subject to pledge under applicable state law and Treasury regulations and
as to which (in the opinion of counsel to the Collateral Agent) appropriate
measures shall have been taken for perfection of the Security Interests.
SECTION 6. GENERAL AUTHORITY. The Company hereby irrevocably appoints the
Collateral Agent its true and lawful attorney, with full power of substitution,
in the name of the Company, the Collateral Agent, the Secured Parties or
otherwise, for the sole use and benefit of the Collateral Agent and the other
Secured Parties, but at the Company's expense, to the extent permitted by law to
exercise, at any time and from time to time while an Event of Default (as
defined under the Credit Agreement) has occurred and is continuing, all or any
of the following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for
any and all monies due or to become due thereon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with the same
or the proceeds or avails thereof, as fully and effectually as if the
Collateral Agent were the absolute owner thereof, and
(iv) to extend the time of payment of any or all thereof and to make
any allowance and other adjustments with reference thereto;
PROVIDED that the Collateral Agent shall give the Company not less than ten
days' prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. To the extent permitted by law, the Company agrees that such
notice constitutes "reasonable notification" within the meaning of Section
9-504(3) of the UCC.
SECTION 7. REMEDIES UPON EVENT OF DEFAULT. (a) If any Event of
Default under the Credit Agreement has occurred and is continuing, the
Collateral Agent may, in accordance with the written instructions of the
Required Lenders, exercise on behalf of the Secured Parties all rights of a
secured party under the UCC (whether or not in effect in the jurisdiction
where such rights are exercised) and, in addition, the Collateral Agent may,
without being required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, (i) withdraw all cash and
Liquid Investments in the Collateral Account and apply such monies, Liquid
Investments and other cash, if any, then held by it as Collateral as
specified in Section 9 and (ii) if there shall be no such monies, Liquid
Investments or cash or if such monies, Liquid Investments or cash shall be
insufficient to pay all the Secured Obligations in full, sell the Collateral
or any part thereof at public or private sale, for cash, upon credit or for
future delivery, and at such price or prices as the Collateral Agent may deem
satisfactory. The Collateral Agent or any other Secured Party may be the
purchaser of any or all of the Collateral so sold at any public sale (or, if
the Collateral is of a type customarily sold in a recognized market or is of
a
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type which is the subject of widely distributed standard price quotations, at
any private sale) and thereafter hold the same, absolutely, free from any
right or claim of whatsoever kind. The Company will execute and deliver such
documents and take such other action as the Collateral Agent deems necessary
or advisable in order that any such sale may be made in compliance with law.
Upon any such sale the Collateral Agent shall have the right to deliver,
assign and transfer to the purchaser thereof the Collateral so sold. Each
purchaser at any such sale shall hold the Collateral so sold to it
absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Company which may be waived, and the
Compan, to the extent permitted by law, hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such sale required by
Section 6 shall (1) in case of a public sale, state the time and place fixed
for such sale, and (2) in the case of a private sale, state the day after
which such sale may be consummated. Any such public sale shall be held at
such time or times within ordinary business hours and at such place or places
as the Collateral Agent may fix in the notice of such sale. At any such sale
the Collateral may be sold in one lot as an entirety or in separate parcels,
as the Collateral Agent may determine. The Collateral Agent shall not be
obligated to make any such sale pursuant to any such notice. The Collateral
Agent may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or
any part of the Collateral on credit or for future delivery, the Collateral
so sold may be retained by the Collateral Agent until the selling price is
paid by the purchaser thereof, but the Collateral Agent shall not incur any
liability in case of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Collateral Agent, instead of exercising
the power of sale herein conferred upon it, may in accordance with the
instructions of the Required Lenders proceed by a suit or suits at law or in
equity to foreclose the Security Interests and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(b) For the purpose of enforcing any and all rights and remedies under
this Agreement the Collateral Agent may (i) require the Company to, and the
Company agrees that it will, at its expense and upon the request of the
Collateral Agent, forthwith assemble all or any part of the Collateral as
directed by the Collateral Agent and make it available at a place designated
by the Collateral Agent which is, in the opinion of the Collateral Agent,
reasonably convenient to the Collateral Agent and the Company, whether at the
premises of the Company or otherwise, (ii) to the extent permitted by
applicable law, enter, with or without process of law and without breach of
the peace, any premise where any of the Collateral is or may be located, and
without charge or liability to it seize and remove such Collateral from such
premises, (iii) have access to and use the Company's books and records
relating to the Collateral and (iv) prior to the disposition of the
Collateral, store or transfer it without charge in or by means of any storage
or transportation facility owned or leased by the Company, process, repair or
recondition it or otherwise prepare it for disposition in any manner and to
the extent the Collateral Agent reasonably deems appropriate and, in
connection with such preparation and disposition, use without charge any
copyright, trademark, trade name, patent or technical process used by the
Company.
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(c) Without limiting the generality of the foregoing, if any Event of
Default (as defined under the Credit Agreement) has occurred and is
continuing,
(i) the Collateral Agent may license, or sublicense, whether
general, special or otherwise, and whether on an exclusive or non-exclusive
basis, any Copyrights, Patents or Trademarks included in the Collateral
throughout the world for such term or terms, on such conditions and in such
manner as the Collateral Agent shall in its sole discretion determine;
(ii) the Collateral Agent may (without assuming any obligations or
liability thereunder), at any time and from time to time, in its sole
discretion, enforce (and shall have the exclusive right to enforce) against
any licensee or sublicensee all rights and remedies of the Company in, to
and under any Copyright Licenses, Patent Licenses or Trademark Licenses
included in the Collateral and take or refrain from taking any action under
any thereof, and the Company hereby releases the Collateral Agent and each
of the other Secured Parties from, and agrees to hold the Collateral Agent
and each of the other Secured Parties free and harmless from and against
any claims and expenses arising out of, any lawful action so taken or
omitted to be taken with respect thereto; and
(iii) upon request by the Collateral Agent, the Company will execute
and deliver to the Collateral Agent a power of attorney, in form and
substance satisfactory to the Collateral Agent, for the implementation of
any lease, assignment, license, sublicense, grant of option, sale or other
disposition of a Copyright, Patent or Trademark included in the Collateral
or any action related thereto. In the event of any such disposition
pursuant to this Section, the Company shall supply its know-how and
expertise relating to the manufacture and sale of the products bearing
Trademarks or the products or services made or rendered in connection with
Patents, and its customer lists and other records relating to such Patents
or Trademarks and to the distribution of said products, to the Collateral
Agent.
(d) Notwithstanding anything to the contrary contained herein or any
other Loan Document, neither the Collateral Agent nor any Secured Party
shall, without first obtaining the approval of a Governmental Authority, take
any action pursuant to this Agreement or any other Loan Document which would
constitute or result in an assignment of any License held by the Company or a
transfer of control of the Company if such assignment or transfer would
require, under the existing applicable law, the prior approval of such
Governmental Authority. The Company agrees to take, and the Company agrees
to cause each of its Subsidiaries to take, in each case upon the occurrence
and during the continuance of an Event of Default, any action that the
Collateral Agent may reasonably request in order to obtain from any
Governmental Authority such approval as may be necessary to enable the
Collateral Agent to assign or transfer control of the Licenses pursuant to
this Agreement, the Loan Documents and each other agreement, instrument and
document delivered to the Collateral Agent in connection herewith and
therewith, including specifically, at the expense of the Company, the use of
the Company's and each of its Subsidiaries' commercially reasonable efforts
to assist in obtaining approval of such Governmental Authority for any action
or transaction contemplated by this Agreement for which such approval is or
shall be required by law, and specifically, without limitation, upon request,
to prepare, sign and file with such Governmental Authority, the assignor's or
transferor's portion of
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any application or applications for consent to the assignment of any License
or transfer of control necessary or appropriate under the rules and
regulations of such Governmental Authority for approval of any sale or sales
of any of the Collateral by or on behalf of the Collateral Agent.
SECTION 8. LIMITATION ON DUTY OF COLLATERAL AGENT IN RESPECT OF
COLLATERAL. Beyond the exercise of reasonable care in the custody thereof,
the Collateral Agent shall have no duty as to any Collateral in its
possession or control or in the possession or control of any agent or bailee
or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto. The Collateral Agent shall
be deemed to have exercised reasonable care in the custody of the Collateral
in its possession if the Collateral is accorded treatment substantially equal
to that which it accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by the Collateral Agent in good faith; PROVIDED, HOWEVER, nothing in
this Section 8 shall be deemed to prejudice any rights of the Company against
such warehouseman, carrier, forwarding agency, consignee or other agent or
bailee.
SECTION 9. APPLICATION OF PROCEEDS. Upon the occurrence and
during the continuance of an Event of Default (as defined under the Credit
Agreement), the proceeds of any sale of, or other realization upon, all or
any part of the Collateral and any cash held in the Collateral Account shall
be applied by the Collateral Agent in accordance with the Credit Agreement.
SECTION 10. APPOINTMENT OF CO-COLLATERAL AGENTS. At any time or
times, in order to comply with any legal requirement in any jurisdiction, the
Collateral Agent may appoint another bank or trust company or one or more
other persons, either to act as co-agent or co-agents, jointly with the
Collateral Agent, or to act as separate agent or agents on behalf of the
Secured Parties with such power and authority as may be necessary for the
effectual operation of the provisions hereof and may be specified in the
instrument of appointment.
SECTION 11. EXPENSES. In the event that the Company fails to
comply with the provisions of the Loan Documents or this Agreement, such that
the value of any Collateral or the validity, perfection, rank or value of any
Security Interest is thereby diminished or potentially diminished or put at
risk, the Collateral Agent if requested by the Required Lenders (i) shall
deliver written notice of such non-compliance to the Company requesting that
it cure such non-compliance, and (ii) if within ten Business Days after
delivery of such notice the Company has failed to cure such non-compliance,
the Collateral Agent may, but shall not be required to, effect such
compliance on behalf of the Company, and the Company shall reimburse the
Collateral Agent for the reasonable costs thereof on demand. All insurance
expenses and all expenses of protecting, storing, warehousing, appraising,
insuring, handling, maintaining and shipping the Collateral, any and all
excise, property, sales, and use taxes imposed by any state, federal, or
local authority on any of the Collateral, or in respect of periodic
appraisals and inspections of the Collateral to the extent the same may
reasonably be requested by the Required Lenders acting through the Collateral
Agent from time to time, or in respect of the sale or other disposition
thereof, shall be borne and paid by the Company; and if the Company fails to
promptly pay any portion thereof when due, except, if no Event of Default (as
defined under the Credit Agreement) has occurred and is continuing, with
respect to taxes which are being contested as permitted by
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Section 5.05 of the Credit Agreement, the Collateral Agent or any other
Secured Party may, at its option, but shall not be required to, pay the same
and charge the Company's account therefor, and the Company agrees to
reimburse the Collateral Agent or such Secured Party therefor on demand. All
reasonable sums so paid or incurred by the Collateral Agent or any other
Secured Party for any of the foregoing and any and all other sums for which
the Company may become liable hereunder and all costs and expenses (including
attorneys' fees, legal expenses and court costs) reasonably incurred by the
Collateral Agent or any other Secured Party in enforcing or protecting the
Security Interests or any of their rights or remedies under this Agreement,
shall, together with interest thereon for each day until paid at the
Alternate Base plus the Applicable Rate plus interest at a rate per annum
equal to two percent (2%) for such day, be additional Secured Obligations
hereunder.
SECTION 12. TERMINATION OF SECURITY INTERESTS; RELEASE OF
COLLATERAL. (a) Upon the repayment in full of all Secured Obligations and the
termination of the Commitments, the Security Interests shall terminate and
all rights to the Collateral shall revert to the Company.
(b) At any time and from time to time prior to such termination of the
Security Interests, the Collateral Agent shall release the Collateral in
accordance with Section 5(c) hereof.
(c) If any Collateral is sold, leased, exchanged, assigned or otherwise
disposed of, or with respect to which on option has been granted, in
accordance with and as permitted under the Credit Agreement, the Security
Interests created hereby in such item (but not in any Proceeds arising from
such sale or exchange) shall cease immediately without any further action on
the part of the Collateral Agent.
(d) Upon any such termination of the Security Interests or release of
Collateral, the Collateral Agent will, at the expense of the Company, execute
and deliver to the Company such documents as the Company shall reasonably
request to evidence the termination of the Security Interests or the release
of such Collateral, as the case may be.
SECTION 13. NOTICES. All notices, approvals, requests, demands
and other communications hereunder shall be given in accordance with Section
9.01 of the Credit Agreement.
SECTION 14. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the
part of the Collateral Agent to exercise, and no delay in exercising and no
course of dealing with respect to, any right under this Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise by the Collateral Agent of any right under this Agreement
or any other Loan Document preclude any other or further exercise thereof or
the exercise of any other right. The rights in this Agreement or the Loan
Documents are cumulative and are not exclusive of any other remedies provided
by law.
SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement is for the
benefit of the Collateral Agent and the other Secured Parties and their
successors and assigns, and in the event of an assignment of all or any of
the Secured Obligations, the rights hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred with such indebtedness.
This Agreement shall be binding on the Company and its successors and assigns
and the rights of the
17
<PAGE>
Company hereunder shall inure to the benefit of the Company's successors and
permitted assigns.
SECTION 16. CHANGES IN WRITING. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Company and the Collateral Agent with the
consent of the Required Lenders.
SECTION 17. SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in favor of the Collateral
Agent and the other Secured Parties in order to carry out the intentions of
the parties hereto as nearly as may be possible; and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart.
SECTION 19. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) The Company hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement or any
other Loan Document shall affect any right that either Agent or any Lender
may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against the Parent, the Borrower or
their properties in the courts of any jurisdiction.
(c) The Company hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (b) of this Section. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.
(d) Each of the Parent and the Borrower hereby irrevocably appoints and
designates CT Corporation System, whose address is 1633 Broadway, New York,
New York 10019, or any other person having and maintaining a place of
business in the State of New York whom the
18
<PAGE>
Parent or the Borrower may from time to time hereafter designate (having
given 30 days' notice thereof to the Administrative Agent, each Lender and
the Collateral Agent), as the true and lawful attorney and duly authorized
agent for acceptance of service of legal process of the Parent and the
Borrower. Without prejudice to the foregoing, each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 9.01 of the Credit Agreement. Nothing in this Agreement or any
other Loan Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
SECTION 20. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 21. WAIVER OF IMMUNITY. To the extent that the Company has
or hereafter may acquire any immunity from jurisdiction of any court or from
any legal process (whether through service or notice, attachment prior to
judgment, attachment in aid or execution, or otherwise) with respect to
itself or its property, the Company hereby irrevocably waives such immunity
in respect of its obligations hereunder and under the other Loan Documents to
the extent permitted by applicable law and, without limiting the generality
of the foregoing, agrees that the waivers set forth in this Section shall
have effect to the fullest extent permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States of America and are intended to be
irrevocable for purposes of such Act.
(Signatures Follow on Next Page)
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement (Borrower) to be duly executed by their respective authorized
officers as of the day and year first above written.
JATO OPERATING CORP.
By:
------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as
Collateral Agent
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
TO
SECURITY
AGREEMENT
PERFECTION CERTIFICATE
The undersigned, [____________], Chief Executive Officer of JATO
OPERATING CORP., a Delaware corporation (the "Company"), hereby certifies
with reference to the Security Agreement (Borrower), dated as of July 14,
1999, between the Company and State Street Bank and Trust Company, as
Collateral Agent (terms defined therein or as provided therein being used
herein as therein defined), to the Administrative Agent and each Lender as
follows:
SECTION 1. NAMES.
(a) The exact corporate name of the Company as it appears in its
certificate of incorporation is as follows: [___________________]
(b) The Company has not had any other corporate name since its
organization.
(c) Except as set forth in Schedule 1, the Company has not changed
its identity or corporate structure in any way within the past five years.
(d) The following is a list of all other names (including trade
names or similar appellations) used by the Company or any of its divisions
or other business units at any time during the past five years:
[___________________]
SECTION 2. CURRENT LOCATIONS. As of the date hereof, (a) the chief
executive office of the Company is located at the following address:
NAME MAILING ADDRESS
---------------------------------------------
(b) The following are all the locations where the Company maintains
any books or records relating to any Accounts:
NAME MAILING ADDRESS
---------------------------------------------
(c) The following are all the places of business of the Company not
identified above:
NAME MAILING ADDRESS
---------------------------------------------
Exhibit A-1
<PAGE>
(d) The following are all the locations not identified above where
the Company maintains any Inventory:
NAME MAILING ADDRESS
---------------------------------------------
(e) The following are all the locations not identified above where
the Company maintains or contemplates maintaining at any time when the
Loans are to be outstanding any Equipment:
NAME MAILING ADDRESS
---------------------------------------------
(f) The following are the names and addresses of all Persons other
than the Company which have possession of any of the Company's Inventory:
NAME MAILING ADDRESS
---------------------------------------------
(g) The following are the names and addresses of all Persons other
than the Company which have possession of any of the Company's Investment
Property:
NAME MAILING ADDRESS
---------------------------------------------
SECTION 3. PRIOR LOCATIONS.
(a) Set forth below is the information required by subparagraphs
(a), (b) and (c) of paragraph 2 with respect to each location or place of
business maintained by the Company at any time during the past five years:
(b) Set forth below is the information required by subparagraphs
(d) and (e) of paragraph 2 with respect to each location or bailee where or
with whom Inventory has been lodged at any time during the past four
months:
SECTION 4. UNUSUAL TRANSACTIONS. All Accounts have been originated by
the Company and all Inventory and Equipment has been acquired by the Company
in the ordinary course of its business.
SECTION 5. FILE SEARCH REPORTS. Attached hereto as Schedule 5(a) is a
true copy of a file search report from the Uniform Commercial Code filing
officer in each jurisdiction identified in paragraph 2 or 3 above with
respect to each name set forth in paragraph 1. Attached hereto as Schedule
5(b) is a true copy of each financing statement or other filing identified in
such file search reports.
SECTION 6. UCC FILINGS. (a) A duly signed financing statement on Form
UCC- 1 in substantially the form of Schedule 6 hereto has been duly delivered
to the Collateral Agent for
Exhibit A-2
<PAGE>
filing in the Uniform Commercial Code filing office in each jurisdiction
identified in paragraph 2 hereof.
Attached hereto as Schedule 6(b) is a true copy of each such filing duly
acknowledged by the filing officer.
SECTION 7. SCHEDULE OF FILINGS. Attached hereto as Schedule 7 is a
schedule setting forth filing information with respect to the filings
described in paragraph 6 above.
SECTION 8. FILING FEES. All filing fees and taxes payable in
connection with the filings described in paragraph 6 above have been paid.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of [_________],
1999.
---------------------------------
Name:
Title
Exhibit A-3
<PAGE>
SCHEDULE 1
CHANGE IN CORPORATE STRUCTURE
<PAGE>
SCHEDULE 6(b)
UCC FILINGS
<PAGE>
SCHEDULE 7
SCHEDULE OF FILINGS
<PAGE>
EXHIBIT B
TO
SECURITY
AGREEMENT
PATENT SECURITY AGREEMENT
(PATENTS, PATENT APPLICATIONS AND PATENT LICENSES)
WHEREAS, JATO OPERATING CORP., a Delaware corporation (herein
referred to as "Grantor") owns the Patents (as defined in the Security
Agreement referred to below) (including design patents and applications for
patents) listed on Schedule I annexed hereto, and is a party to the Patent
Licenses (as defined in the Security Agreement referred to below) identified
in Schedule I annexed hereto;
WHEREAS, Grantor, Jato Communications Corp., certain lenders, State
Street Bank and Trust Company, as Collateral Agent, and Lucent Technologies
Inc., as administrative agent, are parties to a Credit Agreement of even date
herewith (as the same may be amended and in effect from time to time among
said parties and such lenders (the "Lenders") as may from time to time be
parties thereto, the "Credit Agreement");
WHEREAS, pursuant to the terms of the Security Agreement (Borrower)
of even date herewith (as said Agreement may be amended and in effect from
time to time, the "Security Agreement") between Grantor and State Street Bank
and Trust Company, as collateral agent for the Secured Parties referred to
therein (in such capacity, together with its successors in such capacity,
"Grantee"), Grantor has granted to Grantee for the benefit of such Secured
Parties a continuing security interest in substantially all the assets of
Grantor, including all right, title and interest of Grantor in, to and under
the Patent Collateral (as defined herein) whether now owned or existing or
hereafter acquired or arising, to secure the Secured Obligations (as defined
in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the "Patent
Collateral"), whether now owned or existing or hereafter acquired or arising:
(i) each Patent (including each design patent and patent
application), including, without limitation, each Patent (including each
design patent and patent application) referred to in Schedule I annexed
hereto;
(ii) each Patent License, including, without limitation, each Patent
License identified in Schedule I annexed hereto; and
Exhibit B-1
<PAGE>
(iii) all proceeds of and revenues from the foregoing, including,
without limitation, all proceeds of and revenues from any claim by Grantor
against third parties for past, present or future infringement of any
Patent (including any design patent), including, without limitation, any
Patent referred to in Schedule I annexed hereto (including, without
limitation, any such Patent issuing from any application referred to in
Schedule I annexed hereto), and all rights and benefits of Grantor under
any Patent License, including, without limitation, any Patent License
identified in Schedule I annexed hereto.
Grantor hereby irrevocably constitutes and appoints Grantee and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in the name of Grantor
or in its name, from time to time, in Grantee's discretion, so long as any
Event of Default (as defined in the Credit Agreement) has occurred and is
continuing, to take with respect to the Patent Collateral any and all
appropriate action which Grantor might take with respect to the Patent
Collateral and to execute any and all documents and instruments which may be
necessary or desirable to carry out the terms of this Patent Security
Agreement and to accomplish the purposes hereof.
Except to the extent not prohibited in the Security Agreement, Grantor
agrees not to sell, license, exchange, assign or otherwise transfer or
dispose of, or grant any rights with respect to, or mortgage or otherwise
encumber, any of the foregoing Patent Collateral.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor
does hereby further acknowledge and affirm that the rights and remedies of
Grantee with respect to the security interest in the Patent Collateral made
and granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which are incorporated by reference herein as if
fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to
be duly executed by its officer thereunto duly authorized as of the ____ day
of _____________, _____.
JATO OPERATING CORP.
By:
-----------------------------------
Name:
Title:
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
--------------------------------
Name:
Title:
Exhibit B-2
<PAGE>
SCHEDULE I
TO PATENT
SECURITY
AGREEMENT
PATENTS
A. U.S. PATENTS AND DESIGN PATENTS
I.D. NO. PATENT NO, ISSUE DATE TITLE
B. U. S. PATENT APPLICATIONS
SERIAL NO. DATE FILE TITLE
<PAGE>
EXHIBIT C
TO
SECURITY
AGREEMENT
TRADEMARK SECURITY AGREEMENT
(TRADEMARKS, TRADEMARK REGISTRATIONS, TRADEMARK
APPLICATIONS AND TRADEMARK LICENSES)
WHEREAS, JATO OPERATING CORP., a Delaware corporation (herein referred
to as "Grantor"), owns the Trademarks (as defined in the Security Agreement
referred to below) listed on Schedule I annexed hereto, and is a party to the
Trademark Licenses (as defined in the Security Agreement referred to below)
identified in Schedule 1 annexed hereto;
WHEREAS, Grantor, Jato Communications Corp., certain lenders, State
Street Bank and Trust Company, as Collateral Agent, and Lucent Technologies
Inc., as administrative agent, are parties to a Credit Agreement of even date
herewith (as the same may be amended and in effect from time to time among
said parties and such lenders (the "Lenders") as may from time to time be
parties thereto, the "Credit Agreement");
WHEREAS, pursuant to the terms of the Security Agreement (Borrower) of
even date herewith (as said Agreement may be amended and in effect from time
to time, the "Security Agreement") between Grantor and State Street Bank and
Trust Company, as collateral agent for the Secured Parties referred to
therein (in such capacity, together with its successors in such capacity,
"Grantee"), Grantor has granted to Grantee for the benefit of such Secured
Parties a security interest in substantially all the assets of Grantor,
including all right, title and interest of Grantor in, to and under the
Trademark Collateral (as defined herein), whether now owned or existing or
hereafter acquired or arising, to secure the Secured Obligations (as defined
in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the "Trademark
Collateral"), whether now owned or existing or hereafter acquired or arising:
(i) each Trademark, including, without limitation, each Trademark
application referred to in Schedule I annexed hereto, and all of the
goodwill of the business connected with the use of, or symbolized by, each
such Trademark;
(ii) each Trademark License, including, without limitation, each
Trademark License identified in Schedule I annexed hereto, and all of the
goodwill of the business connected with the use of, or symbolized by, each
Trademark licensed pursuant thereto; and
Exhibit C-1
<PAGE>
(iii) all proceeds of and revenues from the foregoing, including,
without limitation, all proceeds of and revenues from any claim by Grantor
against third parties for past, present or future unfair competition with,
or violation of intellectual property rights in connection with or injury
to, or infringement or dilution of, any Trademark, including, without
limitation, any Trademark referred to in Schedule I hereto, and all rights
and benefits of Grantor under any Trademark License, including, without
limitation, any Trademark License identified in Schedule I hereto, or for
injury to the goodwill associated with any of the foregoing.
Grantor hereby irrevocably constitutes and appoints Grantee and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in the name of Grantor
or in its name, from time to time, in Grantee's discretion, so long as any
Event of Default (as defined in the Credit Agreement) has occurred and is
continuing, to take with respect to the Trademark Collateral any and all
appropriate action which Grantor might take with respect to the Trademark
Collateral and to execute any and all documents and instruments which may be
necessary or desirable to carry out the terms of this Trademark Security
Agreement and to accomplish the purposes hereof.
Except to the extent not prohibited in the Security Agreement, Grantor
agrees not to sell, license, exchange, assign or otherwise transfer or
dispose of, or grant any rights with respect to, or mortgage or otherwise
encumber, any of the foregoing Trademark Collateral.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor
does hereby further acknowledge and affirm that the rights and remedies of
Grantee with respect to the security interest in the Trademark Collateral
made and granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which are incorporated by reference herein as if
fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security Agreement
to be duly executed by its officer thereunto duly authorized as of the ____
day of ___________, ____.
JATO OPERATING CORP.
By:
--------------------------------
Name:
Title:
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
-----------------------------
Name:
Title:
Exhibit C-2
<PAGE>
SCHEDULE I
TO
TRADEMARK
SECURITY
AGREEMENT
U.S. TRADEMARKS AND TRADEMARK REGISTRATIONS
A. U.S. TRADEMARKS AND TRADEMARK REGISTRATIONS
REG. NO. REG. DATE MARK
-------- --------- ----
B. U.S. TRADEMARK APPLICATIONS
SERIAL NO. DATE FILED MARK
---------- ---------- ----
EXCLUSIVE TRADEMARK LICENSES
PARTIES
NAME OF DATE OF
AGREEMENT LICENSOR LICENSEE AGREEMENT SUBJECT MATTER
--------- -------- -------- --------- --------------
<PAGE>
EXHIBIT D TO
SECURITY
AGREEMENT
COPYRIGHT SECURITY AGREEMENT
(COPYRIGHTS, COPYRIGHT REGISTRATIONS, COPYRIGHT
APPLICATIONS AND COPYRIGHT LICENSES)
WHEREAS, JATO OPERATING CORP., a Delaware corporation (herein referred
to as "Grantor") owns the Copyrights (as defined in the Security Agreement
referred to below) listed on Schedule I annexed hereto, and is a party to the
Copyright Licenses (as defined in the Security Agreement referred to below)
identified in Schedule I annexed hereto;
WHEREAS, Grantor, Jato Communications Corp., certain lenders, State
Street Bank and Trust Company, as Collateral Agent, and Lucent Technologies
Inc., as administrative agent, are parties to a Credit Agreement of even date
herewith (as the same may be amended and in effect from time to time among
said parties and such lenders (the "Lenders") as may from time to time be
parties thereto, the "Credit Agreement");
WHEREAS, pursuant to the terms of the Security Agreement (Borrower) of
even date herewith (as said Agreement may be amended and in effect from time
to time, the "Security Agreement") between Grantor and State Street Bank and
Trust Company, as collateral agent for the Secured Parties referred to
therein (in such capacity, together with its successors in such capacity, the
"Grantee"), Grantor has granted to Grantee for the benefit of such Secured
Parties a security interest in substantially all the assets of the Grantor,
including all right, title and interest of Grantor in, to and under the
Copyright Collateral (as defined herein), whether now owned or existing or
hereafter acquired or arising, to secure the Secured Obligations (as defined
in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the "Copyright
CoIlateral"), whether now owned or existing or hereafter acquired or arising:
(i) each Copyright, including, without limitation, each Copyright
referred to in Schedule I annexed hereto;
(ii) each Copyright License, including, without limitation, each
Copyright License identified in Schedule I annexed hereto; and
(iii) all proceeds of and revenues from the foregoing, including,
without limitation, all proceeds of and revenues from any claim by Grantor
against third parties for past, present or future infringement of any
Copyright, including, without limitation, any Copyright referred to in
Schedule I annexed hereto, and all rights and benefits of
Exhibit D-1
<PAGE>
Grantor under any Copyright License, including, without limitation, any
Copyright License identified in Schedule I annexed hereto.
Grantor hereby irrevocably constitutes and appoints Grantee and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in the name of Grantor
or in its name, from time to time, in Grantee's discretion, so long as any
Event of Default (as defined in the Credit Agreement) has occurred and is
continuing, to take with respect to the Copyright Collateral any and all
appropriate action which Grantor might take with respect to the Copyright
Collateral and to execute any and all documents and instruments which may be
necessary or desirable to carry out the terms of this Copyright Security
Agreement and to accomplish the purposes hereof.
Except to the extent not prohibited in the Security Agreement, Grantor
agrees not to sell, license, exchange, assign or otherwise transfer or
dispose of, or grant any rights with respect to, or mortgage or otherwise
encumber, any of the foregoing Copyright Collateral.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor
does hereby further acknowledge and affirm that the rights and remedies of
Grantee with respect to the security interest in the Copyright Collateral
made and granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which are incorporated by reference herein as if
fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its officer thereunto duly authorized as of the
_____day of _______, _____.
JATO OPERATING CORP.
By:
---------------------------------
Name:
Title:
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
-----------------------------
Name:
Title:
Exhibit D-2
<PAGE>
SCHEDULE I
TO
COPYRIGHT
SECURITY
AGREEMENT
COPYRIGHTS AND COPYRIGHT REGISTRATION
REGISTRATION NO. REG. DATE TITLE
---------------- --------- -----
COPYRIGHT APPLICATIONS
SERIAL NO. DATE FILED TITLE
---------- ---------- -----
COPYRIGHT LICENSES
PARTIES
NAME OF DATE OF SUBJECT
AGREEMENT LICENSOR LICENSEE AGREEMENT MATTER
--------- -------- -------- --------- ------
<PAGE>
EXHIBIT E TO
SECURITY
AGREEMENT
OPINION OF
COUNSEL FOR THE COMPANY
The Security Agreement creates and constitutes as security for the
Secured Obligations (as defined in the Security Agreement and including any
future obligations which are Secured Obligations), in favor of the Collateral
Agent for the ratable benefit of the Secured Parties, a valid security
interest in all right, title and interest of the Company in the Collateral
and all right, title and interest of the Company in the Collateral Account.
The security interests of the Collateral Agent in all right, title and
interest of the Company in the Collateral created by the Security Agreement
constitute perfected security interests under the Uniform Commercial Code, as
in effect in the State of New York ("UCC"), the United States Copyright Act
("CA"), the United States Patent Act ("PA") and the United States Trademark
Act ("TA"), to the extent that a security interest therein may be perfected
under the UCC, the CA, the PA or the TA. Insofar as the priority thereof is
governed by the UCC, the priority of the security interests created by the
Security Agreement in the Collateral in which the Company has rights on the
date hereof will be the same with respect to Loans made or deemed made
pursuant to the Credit Agreement after the date hereof, except to the extent
that any priority may be affected by any security interest, lien or other
encumbrance imposed by law in favor of any government or governmental
authority or agency. Unless otherwise specifically defined herein, each term
defined herein has the meaning assigned to such term in the Security
Agreement.
With respect to the enforceability of the Security Documents, we express
no opinion as to the availability of specific performance. Moreover, our
opinion with respect to the enforceability of the Security Documents is
subject to the further qualification that certain remedial provisions thereof
may be limited by the law of the State of New York and applicable law of the
United States of America, but such laws do not, in our opinion, make the
remedies afforded thereby inadequate for the practical realization of the
benefits of the security intended to be provided thereby.
Exhibit E-1
<PAGE>
EXHIBIT F TO
SECURITY
AGREEMENT
LOCKBOX AGREEMENT
LOCKBOX AGREEMENT, dated as of [___________], [_____], among JATO
OPERATING CORP., a Delaware corporation (the "Company"), STATE STREET BANK
AND TRUST COMPANY, as Collateral Agent under the Security Agreement referred
to below (the "Collateral Agent"), and [______________] (the "Lockbox Bank").
WITNESSETH:
WHEREAS, the Company and the Collateral Agent have entered into a
Security Agreement (Borrower), dated as of July 14, 1999 (as the same may be
amended from time to time, the "Security Agreement") under which the Company
has granted a continuing security interest in and to the Collateral (as
defined in the Security Agreement) to secure its obligations under the Loan
Documents (defined as provided in the Security Agreement);
WHEREAS, pursuant to the Security Agreement, the Company has agreed to
instruct certain obligors to make payments to (the "Post Office Box"); and
WHEREAS, the Company has requested that the Lockbox Bank establish and
maintain a bank account as further described herein, and the Lockbox Bank is
willing to establish and maintain such account pursuant to this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. POST OFFICE BOX; DEPOSITS INTO THE LOCK BOX ACCOUNT. (a) The
Lockbox Bank shall have unrestricted and exclusive access to the Post Office
Box for the purpose of collecting mail for delivery and deposit into the
Lockbox Account (as defined below) (even though addressed to the Company) and
shall collect the mail delivered thereto on each business day in accordance
with the Lockbox Bank's regular collection schedule.
(b) The contents of the mail collected from the Post Office Box,
whether consisting of cash, checks, drafts, bills of exchange, money orders
or other instruments or documents, shall be promptly deposited by the Lockbox
Bank into the Lockbox Account. The term "Lockbox Account" means account no.
[____________] opened and maintained by the Lockbox Bank for the Company.
(c) The Lockbox Bank shall prepare one photocopy of the front and back
of each check, draft, bill of exchange, money order or other instrument or
document (collectively, hereinafter called the "checks"; individually, a
"check") with the date of deposit to be shown on the bottom edge thereof.
Attachments received with payments, such as detachable stubs,
Exhibit F-1
<PAGE>
together with any correspondence and the individual envelope, are to be
affixed to the photocopy of the check. All of the above instruments will be
delivered by the Lockbox Bank to the Company on a same day basis.
(d) The Lockbox Bank shall endorse all checks which appear to be in
order for deposit into the Lockbox Account and shall process each item under
the same terms and conditions as would apply if the Lockbox Bank or the
Company had made the deposit directly. The Lockbox Bank shall endorse all
such checks as follows:
"DEPOSIT TO THE ACCOUNT OF AND WITHOUT PREJUDICE TO THE WITHIN
NAMED PAYEE LOCKBOX SERVICES"
This endorsement may be made by use of a payee endorsement stamp.
(e) Undated checks may be dated by the Lockbox Bank to agree with the
postmark date and included in the regular deposit. Checks incorrectly made
out, where numerical and written amounts differ, are to be deposited for the
written amount only. Checks bearing no signature are to be stamped with a
"Kindly Refer to Maker" stamp and processed. Third-party checks may be
deposited into the Lockbox Account if properly endorsed.
(f) Checks bearing the legend "Payment in Full" or words of similar
import, either typed or handwritten, and checks that the Lockbox Bank, in its
normal banking practices and in its sole discretion, decides to submit to the
special attention of the Company or the Collateral Agent, shall be withheld
from the clearing system and sent to the Company or, at any time after
receipt by the Lockbox Bank of written notice from (which notice may be
delivered only upon the occurrence and during the continuation of an Event of
Default (as defined in the Credit Agreement)) the Collateral Agent, to the
entity designated in a written notice from the Collateral Agent. Should the
Lockbox Bank by reason of the exercise of its judgment, or through
inadvertence or oversight, process any of the checks covered by this Section
1(f) for collection and credit such checks to the Lockbox Account, the
Company and the Collateral Agent agree that the Lockbox Bank shall incur no
responsibility or liability.
(g) The details representing deposited items, adding machine tapes,
advice of credit, etc., together with all other materials rejected for
various reasons, and so marked, shall be sent by the Lockbox Bank to the
Company or, at any time after receipt by the Lockbox Bank of written notice
(which notice may be delivered only upon the occurrence and during the
continuation of an Event of Default (as defined in the Credit Agreement))
from the Collateral Agent, to the entity designated in a written notice from
the Collateral Agent. Checks returned unpaid because of uncollected or
insufficient funds shall be redeposited without advice. Checks returned a
second time shall be charged to the Lockbox Account and mailed with
appropriate advice to the Company or, at any time after receipt by the
Lockbox Bank of written notice (which notice may be delivered only upon the
occurrence and during the continuation of an Event of Default (as defined in
the Credit Agreement)) from the Collateral Agent, to the entity designated in
a written notice from the Collateral Agent.
Exhibit F-2
<PAGE>
(h) The Lockbox Bank shall maintain a microfilm record of each check
included in the Lockbox Account in accordance with the Lockbox Bank's normal
lockbox procedures. This film shall be available for use by the Company and
the Collateral Agent.
(i) The Company shall deposit such amounts into the Lockbox Account as
are required to be so deposited pursuant to Section 5 of the Security
Agreement.
SECTION 2. THE LOCKBOX ACCOUNT AND TRANSFERS THEREFROM. (a) Unless and
until the Lockbox Bank receives notice (which notice may be delivered only
upon the occurrence and during the continuation of an Event of Default (as
defined in the Credit Agreement)) from the Collateral Agent that the
provisions of Section 2(b) are to be implemented, which notice shall be
effective upon receipt by the Lockbox Bank (a "Stop Transfer Notice"), the
Lockbox Bank will debit the Lockbox Account in accordance with the Company's
instructions.
(b) After receipt by the Lockbox Bank of a Stop Transfer Notice, the
Lockbox Bank will cease debiting the Lockbox Account in accordance with the
Company's instructions (but may continue to debit the Lockbox Account in
accordance with Section 1(g)) and will disburse funds from the Lockbox
Account only in accordance with instructions from the Collateral Agent.
SECTION 3. MISCELLANEOUS. (a) The Company hereby agrees to immediately
notify its account debtors which have not already been notified to send all
their remittances to the Post Office Box.
(b) The Lockbox Bank's compensation for providing the services
contemplated herein shall be as mutually agreed between the Company and the
Lockbox Bank from time to time.
(c) The Lockbox Bank undertakes to perform only such duties as are
expressly set forth herein and are normally undertaken by the Lockbox Bank in
connection with its lockbox processing. Notwithstanding any other provision
of this Agreement, it is agreed by the parties to this Agreement that the
Lockbox Bank shall not be liable for any action taken by the Lockbox Bank or
any of its directors, officers, agents or employees in accordance with this
Agreement except for the Lockbox Bank's (or any director's, officer's,
agent's or employee's) gross negligence or willful misconduct. In no event
shall the Lockbox Bank be liable for losses or delays resulting from acts of
God, force majeure, computer malfunctions, interruptions of communication
facilities, labor difficulties or other causes beyond the Lockbox Bank's
reasonable control or for indirect, special or consequential damages.
(d) All notices or other written communications hereunder shall be sent:
in the case of the Lockbox Bank, to:
--------------------
--------------------
--------------------
--------------------
Exhibit F-3
<PAGE>
in the case of the Company, to:
--------------------
--------------------
--------------------
--------------------
in the case of the Collateral Agent, to:
--------------------
--------------------
--------------------
--------------------
(e) The Lockbox Bank shall not assert, claim or endeavor to exercise
any right of set-off or banker's lien against any funds which may at any time
be deposited in the Lockbox Account, or any items or proceeds thereof that
come into the Lockbox Bank's possession in connection with this Agreement,
except to the extent otherwise provided in the last sentence of Section 1(g)
and except for fees payable pursuant to Section 3(b).
(f) During the term of the Security Agreement, this Agreement may be
terminated only by the Lockbox Bank, and then only upon written notice to the
other parties; PROVIDED that such termination shall not be effective until
the earlier of (i) such time as a successor bank shall have been appointed
and shall have accepted the responsibilities, duties and obligations of the
Lockbox Bank under this Agreement and (ii) 5:00 P.M. (New York time) on the
60th day after receipt of such written notice. In the event that the Lockbox
Bank receives remittances following such termination, it will forward such
remittances to such successor bank (or, if no successor bank has been
appointed and shall have accepted the responsibilities, duties and
obligations of the Lockbox Bank under this Agreement, then as directed by the
Collateral Agent) and the Company shall compensate the Lockbox Bank for such
services at the price agreed to pursuant to Section 3(b) hereof.
(g) Neither this Agreement nor any provision hereof may be changed,
amended, modified or waived orally, but only by an instrument in writing
signed by the parties hereto.
(h) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(i) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
(j) This Agreement may be executed in any number of counterparts which
together shall constitute one and the same instrument.
(k) The Company agrees to pay, indemnify and hold the Lockbox Bank
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including,
Exhibit F-4
<PAGE>
without limitation, legal fees) with respect to the performance of this
Agreement by the Lockbox Bank or of its directors, officers, agents or
employees, unless arising from its or such natural persons' own gross
negligence or willful misconduct. The provisions of this paragraph shall
survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
JATO OPERATING CORP.
By:
-------------------------------
Name:
Title:
[BANK]
By:
-------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent
By:
-------------------------------
Name:
Title:
Exhibit F-5
<PAGE>
EXHIBIT G
TO SECURITY AGREEMENT
[FORM OF SECURITIES CONTROL ACCOUNT AGREEMENT]
Exhibit G-1
<PAGE>
EXHIBIT G TO
SECURITY
AGREEMENT
(BORROWER)
[FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT (BORROWER)]
SECURITIES ACCOUNT CONTROL AGREEMENT (BORROWER)
This SECURITIES ACCOUNT CONTROL AGREEMENT (BORROWER) (the
"AGREEMENT"), dated as of July 14, 1999, by and among Jato Operating Corp., a
Delaware corporation (the "BORROWER"), Lehman Brothers Inc. (the "SECURITIES
INTERMEDIARY"), and State Street Bank and Trust Company, as Collateral Agent
(the "COLLATERAL AGENT") for the benefit of the Secured Parties (as defined
in the Credit Agreement referred to below). Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Credit Agreement,
dated as of July 14, 1999, among the Borrower, Jato Communications Corp., the
lenders party thereto, the Collateral Agent and Lucent Technologies Inc., as
Administrative Agent, as amended, supplemented and modified from time to time
(the "CREDIT AGREEMENT"), and references herein to the "UCC" are references
to the Uniform Commercial Code as in effect in the State of New York.
WHEREAS, pursuant to the Security Agreement (Borrower), the
Borrower has granted a security interest in substantially all of its assets;
and
WHEREAS, the Security Agreement (Borrower) requires the
Borrower and the Securities Intermediary to enter into this Agreement;
NOW THEREFORE, the parties hereto hereby agree, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. ESTABLISHMENT OF SECURITIES ACCOUNT. The Securities
Intermediary hereby confirms that the Securities Intermediary has established
account number 833-33166-1-3 under the name "Jato Operating Corp. pledge
account for State Street Bank and Trust Company, as Collateral Agent"
(together with any successor accounts, the "SECURITIES ACCOUNT") for the
Borrower.
2. TREATMENT OF THE SECURITIES ACCOUNT.
(a) The Securities Account is, and shall be treated as, a
"securities account" within the meaning of Section 8-501 of the UCC.
(b) The Securities Account is an account to which financial
assets are or may be credited.
<PAGE>
(c) The Securities Intermediary shall treat the Collateral
Agent as (i) entitled to exercise the rights that comprise any financial
asset credited to the Securities Account, and (ii) the "entitlement holder"
(within the meaning of Section 8-102 of the UCC), for the benefit of the
Secured Parties, with respect to the Securities Account on the books and
records of the Securities Intermediary.
(d) All property delivered to the Securities Intermediary
shall be promptly credited to the Securities Account.
(e) All securities or other property (other than cash)
capable of being issued or registered in the name of a Person or in bearer
form underlying any financial assets credited to the Securities Account shall
be registered in the name of "Jato Operating Corp. pledge account for State
Street Bank and Trust Company, as Collateral Agent" or indorsed to the
Securities Intermediary or in blank, and in no case shall any such financial
asset credited to the Securities Account be registered in the name of the
Borrower, payable to the order of the Borrower or specially indorsed to the
Borrower, except as provided in Section 5 hereof.
3. "FINANCIAL ASSETS" ELECTION. Each item of property
(whether investment property, financial asset, security, instrument or cash
or any other property of any kind) credited to the Securities Account shall
be treated as a "financial asset" (within the meaning of Section 8-102(a)(9)
of the UCC) under Article 8 of the UCC.
4. CONTROL BY COLLATERAL AGENT. Upon receipt of a Notice
of Exclusive Control, the Securities Intermediary shall: (i) comply with all
notifications it receives directing it to transfer or redeem any financial
asset in the Securities Account (each an "ENTITLEMENT ORDER") originated by
the Collateral Agent without further consent by the Borrower; and (ii) take
directions with respect to the Securities Account from the Collateral Agent.
5. BORROWER'S RIGHTS IN THE SECURITIES ACCOUNT.
(a) Except as otherwise provided in this Section 5, the
Securities Intermediary shall comply with Entitlement Orders originated by
the Borrower without further consent by the Collateral Agent.
(b) If the Securities Intermediary shall have received from
the Collateral Agent a notice of exclusive control substantially in the form
of Exhibit A attached (a "NOTICE OF EXCLUSIVE CONTROL"), the Securities
Intermediary shall cease:
(i) complying with Entitlement Orders or other
directions concerning the Securities Account originated by the Borrower;
and
(ii) distributing to the Borrower earnings, income,
dividends, interest, or other distributions on investment property,
instruments, money, or other property credited to the Securities Account.
(c) The Collateral Agent hereby agrees, solely for the benefit
of the Borrower and its successors and assigns, that the Collateral Agent will
not issue a Notice of Exclusive
2
<PAGE>
Control or any Entitlement Order unless an Event of Default has occurred and
is continuing on such date.
(d) Notwithstanding any contrary provisions hereof, unless
and until the Securities Intermediary receives a Notice of Exclusive Control
from the Collateral Agent, (i) the Borrower shall have the right to (1) trade
and exercise rights over the Securities Account, including Entitlement Orders
that would require the Securities Intermediary to make a delivery to or for
the account of the Borrower or any other Person and (2) originate Entitlement
Orders with respect to the Securities Account and (ii) the Securities
Intermediary shall handle, invest, disburse and dispose of all financial
assets credited to the Securities Account in accordance with Entitlement
Orders or other directions originated by the Borrower.
(e) Upon receipt of a Notice of Exclusive Control, the
Securities Intermediary shall cease complying with any Entitlement Orders
originated by the Borrower that would require the Securities Intermediary to
make a delivery to or for the account of the Borrower or any other Person,
except where the Collateral Agent has confirmed in writing that such delivery
is acceptable to the Collateral Agent.
6. SECURITY INTERMEDIARY'S LIEN. The Securities
Intermediary agrees that, except for payment of its fees, commissions and
settlement of open orders, it will not assert any lien, encumbrance, claim or
right against the Securities Account or any asset carried in the Securities
Account.
7. SECURITIES INTERMEDIARY'S RESPONSIBILITY.
(a) The Securities Intermediary shall not be liable to the
Collateral Agent (for the benefit of the Secured Parties) for complying with
Entitlement Orders from the Borrower that are received by the Securities
Intermediary before the Securities Intermediary receives and has a reasonable
opportunity to act on a Notice of Exclusive Control.
(b) The Securities Intermediary shall not be liable to the
Borrower for complying with a Notice of Exclusive Control or with Entitlement
Orders originated by the Collateral Agent, even if the Borrower notifies the
Securities Intermediary that the Collateral Agent is not legally entitled to
issue the Entitlement Order or Notice of Exclusive Control.
(c) This Agreement does not create any obligation of the
Securities Intermediary except for those expressly set forth in this
Agreement. In particular, the Securities Intermediary need not investigate
whether the Collateral Agent is entitled under the Collateral Agent's
agreements with the Borrower to give an Entitlement Order or a Notice of
Exclusive Control. The Securities Intermediary may rely on notices and
communications that it believes were given by the appropriate party.
8. STATEMENTS, CONFIRMATIONS, AND NOTICES OF ADVERSE
CLAIMS. The Securities Intermediary shall provide to the Collateral Agent
duplicate copies of all statements, confirmations and other communications
sent by the Securities Intermediary to the Borrower. Except for the claims
and interests of the Collateral Agent (for the benefit of the Secured
Parties) and of the Borrower, the Securities Intermediary does not know of
any claim to, or interest in, the Securities Account or in any financial
assets credited thereto. If any person asserts any lien,
3
<PAGE>
encumbrance or adverse claim (including any writ, garnishment, judgment,
warrant of attachment, execution or similar process) against the Securities
Account or in any financial asset credited thereto, the Securities
Intermediary shall notify the Collateral Agent and the Borrower thereof
promptly after becoming aware thereof.
9. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE
SECURITIES INTERMEDIARY. The Securities Intermediary hereby represents,
warrants and covenants that:
(a) The Securities Account has been or shall be established
as described in Section 1 above, and the Securities Account shall be
maintained in the manner set forth herein until termination of this
Agreement. The Securities Intermediary shall not change the name or account
numbers of the Securities Account without the prior written consent of the
Collateral Agent.
(b) No financial asset is registered in the name of the
Borrower, or payable to the Borrower's order, or specifically indorsed to the
Borrower, except to the extent that such financial asset has been indorsed to
the Securities Intermediary or in blank. Except as otherwise provided in
Section 5 hereof, no financial asset shall be registered in the name of the
Borrower or payable to the Borrower's order or specially indorsed to the
Borrower, except to the extent that such financial asset has been indorsed to
the Securities Intermediary or in blank.
(c) This Agreement is the valid and legally binding
obligation of the Securities Intermediary.
(d) Other than this Agreement, (i) the Securities
Intermediary has not entered into, and until the termination of this
Agreement shall not enter into, any agreement with any other Person relating
to the Securities Account and/or any financial assets credited thereto
pursuant to which it has agreed to comply with Entitlement Orders of such
Person; and (ii) the Securities Intermediary has not entered into any other
agreement with the Borrower or the Collateral Agent purporting to limit or
condition the obligation of the Securities Intermediary to comply with
Entitlement Orders as set forth in Section 4 and Section 5 hereof; provided
that, the Collateral Agent acknowledges that the Securities Account is
managed on a discretionary basis by the Securities Intermediary on behalf of
the Borrower.
10. INDEMNITY. The Borrower hereby indemnifies and agrees
to defend and hold harmless the Securities Intermediary, its officers,
directors, employees, and agents against claims, liabilities, and expenses
arising out of this Agreement (including attorneys' fees and disbursements),
except to the extent that such claims, liabilities, or expenses are caused by
or arise from the Securities Intermediary's gross negligence or willful
misconduct.
11. GOVERNING LAW. This Agreement and the Securities
Account shall be governed by the laws of the State of New York. Regardless of
any provisions in any other agreement, for purposes of the UCC, New York
shall be deemed to be the jurisdiction of the Securities Intermediary with
respect to the Securities Account and Entitlement Orders related thereto.
4
<PAGE>
12. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION
OR PROCEEDING BY THE COLLATERAL AGENT AGAINST IT UNDER, ARISING OUT OF OR IN
ANY MANNER RELATING TO THIS AGREEMENT OR ANY TRANSACTION RELATED HERETO MAY
BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE
BORROWER, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND
IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH
COURTS IN ANY SUCH ACTION OR PROCEEDING. AS AN ALTERNATIVE METHOD OF
SERVICE, THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY
COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR
PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER
PROVIDED FOR IN SECTION 17 HEREOF. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING
BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS OR ANY SIMILAR BASIS. THE BORROWER SHALL NOT BE ENTITLED IN
ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER
THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH DEFENSE IS
ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING IN THIS
SECTION 12 SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF
THE COLLATERAL AGENT OR ANY OTHER SECURED PARTY TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION RELATING HERETO.
13. ENTIRE AGREEMENT. This Agreement is the entire
agreement, and supersedes any prior agreements and contemporaneous oral
agreements, of the parties concerning its subject matter.
14. AMENDMENTS. No amendment or modification of this
Agreement or waiver of any right hereunder shall be binding on any party
hereto unless it is in writing and is signed by all of the parties hereto.
15. SEVERABILITY. To the extent a provision of this
Agreement is unenforceable, this Agreement shall be construed, to the maximum
extent permitted by applicable law, as if the unenforceable provision were
omitted.
16. SUCCESSORS. The terms of this Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns.
5
<PAGE>
17. NOTICES. All notices and other communications required
or permitted to be given hereunder shall be in writing, shall be addressed as
provided below and shall be considered as properly given (a) if delivered in
person, (b) if mailed by first class United States mail, postage prepaid,
registered or certified with return receipt requested or (c) if sent by
prepaid facsimile transmission confirmed by telephone. Notice so given shall
be effective upon receipt by the addressee, except that communication or
notice so transmitted by facsimile transmission and confirmed by telephone
shall be deemed to have been validly and effectively given on the day (if a
Business Day and, if not, on the next following Business Day) on which it is
transmitted by facsimile and confirmed by telephone before 4:00 p.m.,
recipient's time, and if transmitted by facsimile and confirmed by telephone
after that time, on the next following Business Day; PROVIDED, HOWEVER, that
if any notice is tendered to an addressee and the delivery thereof is refused
by such addressee, such notice shall be effective upon such tender. Any
party shall have the right to change its address for notice hereunder to any
other location within the continental United States by giving of thirty (30)
days' notice to the other parties in the manner set forth hereinabove. Any
communications between the parties hereto or notices provided herein may be
given to the following addresses:
(1) Collateral Agent: State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, MA 02111-174
Attention: Global Investor Services Group
Corporate Trust
Telecopy No.: (617) 662-1465
Copy to: Lucent Technologies Inc.
283 King George Road
Warren, NJ 07059
Attention: Assistant Treasurer - Project Finance
Telecopy No.: (908) 559-1711
(2) Borrower: Jato Operating Corp.
1099 18th Street
Suite 800
Denver, CO 80202
Attention: Vice President of Finance
Telecopy No.: (303) 226-8305
Copy to: Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, CO 80302
Attention: Rex R. O'Neal, Esq.
Telecopy No.: (303) 546-4099
6
<PAGE>
(3) Securities
Intermediary: Lehman Brothers Inc.
555 California Street
30th Floor
San Francisco, CA 94104
Attention: William E. Welsh III, Branch Manager
Telecopy No.: (415) 263-4400
18. TERMINATION. The rights and powers granted herein to
the Collateral Agent have been granted in order to perfect its security
interests in the Securities Account for the benefit of the Secured Parties,
are powers coupled with an interest and shall be affected neither by the
bankruptcy of the Borrower nor by the lapse of time. The obligations of the
Securities Intermediary hereunder shall continue in effect until the security
interests of the Collateral Agent for the benefit of the Secured Parties in
the Securities Account have been terminated and the Collateral Agent has
notified the Securities Intermediary of such termination in writing.
19. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
20. HEADINGS. Section headings have been inserted in this
Agreement as a matter of convenience for reference only, and it is agreed
that such section headings are not a part of this Agreement and shall not be
used in the interpretation of any provision of this Agreement.
(Signatures Follow on Next Page)
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities
Account Control Agreement to be duly executed by their duly authorized
representatives as of the day and year first above written.
JATO OPERATING CORP.
By:
-------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
-------------------------------
Name:
Title:
LEHMAN BROTHERS INC.,
as Securities Intermediary
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[Letterhead of the Collateral Agent]
[Date]
Lehman Brothers Inc.
555 California Street
30th Floor
San Francisco, CA 94104
Attention: William E. Welsh III, Branch Manager
Notice of Exclusive Control
Ladies and Gentlemen:
As referenced in the Securities Account Control Agreement
(Borrower), dated as of July 14, 1999, among Jato Operating Corp., Lehman
Brothers, Inc. and State Street Bank and Trust Company, as Collateral Agent
(a copy of which is attached), we hereby give you notice of our exclusive
control over securities account number 833-33166-1-3 (the "SECURITIES
ACCOUNT") and all financial assets, cash and instruments credited thereto.
You are hereby instructed not to accept any direction, instruction or
entitlement order with respect to the Securities Account or the financial
assets, cash and instruments credited thereto from any person other than the
undersigned.
You are instructed to deliver a copy of this notice by
facsimile transmission to Jato Operating Corp.
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent
By:
--------------------------
Title
<PAGE>
EXHIBIT E
[FORM OF PLEDGE AGREEMENT (BORROWER)]
PLEDGE AGREEMENT
(BORROWER)
This PLEDGE AGREEMENT (BORROWER), dated as of July 14, 1999, is made
between JATO OPERATING CORP., a Delaware corporation (with its successors,
the "PLEDGOR") and STATE STREET BANK AND TRUST COMPANY, as collateral agent
for and on behalf of and for the benefit of itself, the Administrative Agent
(as hereinafter defined) and the Lenders (as hereinafter defined), including
without limitation itself in its capacity at any time or from time to time as
a Lender (as hereinafter defined) (with its successors in such capacity, the
"COLLATERAL AGENT").
W I T N E S S E T H:
WHEREAS, the Pledgor owns all of the common stock of
[____________], a [____________] corporation (with its successors, the
"SUBSIDIARY"); and
WHEREAS, the Pledgor, Jato Communications Corp., the
Lenders, State Street Bank and Trust Company, as Collateral Agent, and Lucent
Technologies Inc., as administrative agent (the "ADMINISTRATIVE AGENT"), are
parties to a Credit Agreement, dated as of July 14, 1999, (as the same may be
amended, supplemented, restated or replaced from time to time, the "CREDIT
AGREEMENT"), providing, subject to the terms and conditions thereof, for
making Loans by the Lenders to the Pledgor; and
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the Credit
Agreement and not otherwise defined herein have, as used herein, the
respective meanings provided for therein. The following additional terms as
used herein, have the following respective meanings:
"COLLATERAL" has the meaning assigned to such term in
Section 3(a).
"COLLATERAL ACCOUNT" has the meaning set forth in the
Security Agreement.
"EVENT OF DEFAULT" or "EVENTS OF DEFAULT" has any meaning
assigned to such terms(s) in the Credit Agreement.
"ISSUER" means (1) the Subsidiary and (ii) each other
direct subsidiary of the Pledgor that shall hereafter become, in accordance
with Section 4, an "ISSUER" for purposes of this Pledge Agreement.
<PAGE>
"LENDERS" and "LIEN" have the meanings assigned to such
terms in the Credit Agreement.
"PLEDGED INSTRUMENTS" means (i) the intercompany notes, if
any, listed on Exhibit A hereto and (ii) any instrument required to be
pledged to the Collateral Agent pursuant to Section 3(b).
"PLEDGED SECURITIES" means the Pledged Instruments and the
Pledged Stock.
"PLEDGED STOCK" means the Subsidiary Shares and any other
capital stock or securities required to be pledged to the Collateral Agent
pursuant to Section 3(b), and in respect of which such pledge or the Security
Interests or both has not been released pursuant to Section 14 or other terms
or provisions of this Pledge Agreement.
"REQUIRED LENDERS" has the meaning assigned to such term in
the Credit Agreement.
"SECURED OBLIGATIONS" means, collectively:
(i) the Secured Obligations (as defined in the
Security Agreement); and
(ii) the Pledgor's obligations under this Pledge
Agreement.
"SECURED PARTIES" means, collectively (i) the Lenders, (ii)
the Administrative Agent and (iii) the Collateral Agent.
"SECURITY AGREEMENT" means the Security Agreement (Borrower),
dated as of July 14, 1999, between tile Pledgor and the Collateral Agent, as the
same may be modified, amended, supplemented, restated or replaced and
supplemented and in effect from time to time.
"SECURITY INTERESTS" means the security interests in the
Collateral granted hereunder securing the Secured Obligations.
"SUBSIDIARY SHARES" means, in aggregate, (a) the [________]
shares in the capital stock of the Subsidiary owned by the Pledgor, which share
as at the date hereof is represented by certificate No. [___] issued by the
Subsidiary and registered in the name of the Pledgor.
"UCC" means the Uniform Commercial Code of the State of New
York.
Unless otherwise defined herein, or unless the context
otherwise requires, all terms used herein which are defined in the UCC as in
effect on the date hereof shall have the meanings ascribed thereto in the UCC.
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SECTION 2. REPRESENTATIONS AND WARRANTIES. The Pledgor
represents and warrants as follows:
(a) TITLE TO PLEDGED SECURITIES. The Pledgor owns all of
the Pledged Securities, free and clear of any Liens other than the Security
Interests. All of the Pledged Stock has been duly authorized and validly
issued, is fully paid and nonassessable (if applicable), and is subject to no
options to purchase or similar rights of any person, and constitutes all and
not less than all the Pledgor's securities of any class in the capital of
each Issuer. The Pledgor is not and agrees that it will not become a party to
or otherwise bound by any agreement, other than this Pledge Agreement or any
of the Loan Documents, which might affect or restrict in any manner the
rights of the Collateral Agent or the other Secured Parties or both or any
present or future holder of any of the Pledged Stock with respect thereto.
(b) VALIDITY, PERFECTION AND PRIORITY OF SECURITY
INTERESTS. Upon the delivery in New York of the Pledged Instruments and the
certificates representing the Pledged Stock to the Collateral Agent in
accordance with Section 3 hereof, the Collateral Agent will have valid and
perfected security interests in the Collateral subject to no prior Lien. If
the Collateral is held in New, York. then no registration, recordation or
filing with any governmental body, agency or official is required under New
York law in connection with the execution or delivery of this Pledge
Agreement or necessary for the validity or enforceability hereof or for the
perfection or enforcement of' the Security Interests (other than filing of
appropriate financing statements in New York pursuant to the UCC). Neither
the Pledgor nor the Subsidiary has performed or will perform any acts which
might prevent the Collateral Agent from enforcing any of the terms and
conditions of this Pledge Agreement or which would limit the Collateral Agent
in any such enforcement.
SECTION 3. THE SECURITY INTERESTS. In order to secure the
full and punctual payment of the Secured Obligations in accordance with the
terms thereof, and to secure the performance of all the obligations of the
Pledgor hereunder:
(a) The Pledgor hereby assigns, transfers and pledges to
the Collateral Agent for the benefit of itself and the other Secured Parties
and grants to the Collateral Agent for the benefit of itself and the other
Secured Parties a security interest in the Pledged Securities, and all of its
rights and privileges with respect thereto, all renewals thereof,
substitutions therefor and accretions thereto, all proceeds, income and
profits thereon, and all dividends (in cash or specie) and other payments and
distributions with respect thereto and all securities and certificates
therefor which shall be from time to time held by the Collateral Agent in
safe custody (all such securities, renewals thereof, accretions thereto,
proceeds thereof and income therefrom, collectively but excluding any
Collateral released or distributable from time to time pursuant to Sections
6, Section 14 or other terms or provisions of this Pledge Agreement, the
"COLLATERAL"), as general and continuing collateral security and as a pledge,
assignment and transfer, all the foregoing being subject to the Pledgor's
rights under Sections 6 and 7. Contemporaneously with the execution and
delivery hereof, the Pledgor is delivering the Pledged Instruments and the
certificates representing the Pledged Stock
(b) Subject to Section 6, in the event that (i) any Issuer
other than the Subsidiary at any time issues shares of capital stock of any
class to the Pledgor, (ii) any Issuer at
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any time issues to the Pledgor any Collateral in addition to the Subsidiary
Shares, including without limitation shares of any class or series in its
capital issued in respect of any new equity investment or other consideration
of any kind from the Pledgor, or any additional or substitute certificates
and/or shares of capital stock of any class, including without limitation any
certificates and/or shares representing a stock dividend, a stock split or a
distribution in connection with any reclassification, increase, reduction or
return of capital or issued in connection with any recapitalization or any
reorganization, options or rights, whether as an addition to, in substitution
or exchange for the Subsidiary Shares, any of the Pledged Securities or other
Collateral, or otherwise, or (iii) any Issuer at any time issues any note or
substitute note, or owes any other Indebtedness to the Pledgor, the Pledgor
shall accept the same as agent for and hold the same in trust for the benefit
of the Secured Parties and deliver the same forthwith to the Collateral Agent
in the exact form received, with the endorsement in blank of the Pledgor
accompanied by stock powers executed by the Pledgor when necessary or
appropriate, in the opinion of and in form and substance satisfactory to, the
Collateral Agent, acting reasonably, to be held by the Collateral Agent as
additional security for the Secured Obligations, and such shall thereupon be
deemed included in the Collateral for all purposes of this Pledge Agreement
and made subject to the Security Interests, and the Pledgor will immediately
pledge to and deposit with the Collateral Agent certificates representing all
such shares and such note or an instrument evidencing such other Indebtedness
or such other Collateral as additional security for the Secured Obligations.
All such shares, notes and instruments constitute Pledged Securities and are
subject to all provisions of this Pledge Agreement.
(c) The Security Interests are granted as security only and
shall not subject the Collateral Agent or any Secured Party to, or transfer
or in any way affect or modify, any obligation or liability of the Pledgor or
the Issuers with respect to any of the Collateral or any transaction in
connection therewith.
(d) All Pledged Instruments delivered to the Collateral
Agent by the Pledgor pursuant hereto shall be endorsed in suitable form for
transfer by endorsement and delivery by the Collateral Agent, and accompanied
by any required transfer tax stamps, all in form and Substance satisfactory
to the Collateral Agent. All certificates representing Pledged Stock
delivered to the Collateral Agent by the Pledgor pursuant hereto shall be in
suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment or contract notes, where
applicable, in blank, and accompanied by any required transfer tax stamps,
all in form and substance satisfactory to the Collateral Agent.
SECTION 4. FILING FURTHER ASSURANCES.
(a) The Pledgor agrees that it will, in such manner and
form as the Collateral Agent may require, execute, deliver, file and record
any financing statement, specific assignment or other paper and take any
other action that the Collateral Agent reasonably may determine to be
necessary or desirable in order to create, preserve, perfect or validate any
Security Interest or to enable the Collateral Agent to exercise and enforce
its rights hereunder with respect to any of the Collateral. Without limiting
the generality of the foregoing, whenever any person other than the
Subsidiary shall become a subsidiary of the Pledgor, such subsidiary shall
automatically become an Issuer and the Pledgor shall, if requested by the
Collateral Agent, promptly deliver to the Collateral Agent an opinion of
counsel to the Pledgor covering such matters relating to the
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<PAGE>
validity, perfection and priority of the Security Interests in the Pledged
Securities of such Issuer as the Collateral Agent shall reasonably request.
(b) The Pledgor agrees that it shall notify the Collateral
Agent in writing at least twenty (20) days prior to any change of name of the
Pledgor.
SECTION 5. FORM OF SHARES. The certificates representing
any of the Pledged Stock or other shares included in the Collateral at any
time shall be free of any restrictive or cautionary legends other than with
respect to the Securities Act of 1933 or blue sky laws.
SECTION 6. RIGHT TO RECEIVE DISTRIBUTIONS ON COLLATERAL.
(a) So long as no Event of Default shall at any applicable
time have occurred and be continuing, the Pledgor shall have the right to
receive all dividends (in cash or specie), interest, returns of capital and
other payments or distributions made upon or with respect to, and all options
and rights issued in connection with, the Collateral.
(b) The Collateral Agent shall, upon the occurrence and
during the continuance of an Event of Default, have the right to receive (for
deposit in the Collateral Account, if cash) and to retain as Collateral
hereunder all dividends (in cash or specie), interest and other payments and
distributions made upon or with respect to the Collateral and the Pledgor
shall take all such action as the Collateral Agent may deem necessary or
appropriate to give effect to such right. All such dividends, interest and
other payments and distributions which are received by the Pledgor, upon the
occurrence and during the continuance of an Event of Default, shall be
received in trust for the benefit of the Collateral Agent and the other
Secured Parties and, if the Collateral Agent so directs, upon the occurrence
and during the continuance of an Event of Default, shall be segregated from
other funds of the Pledgor and shall, forthwith upon demand by the Collateral
Agent during the continuance of an Event of Default, be paid over to the
Collateral Agent as Collateral in the same form as received (with any
necessary endorsement, and accompanied by any necessary stock powers executed
by the Pledgor). After all Events of Default have been cured, the Collateral
Agent's right to retain dividends, interest and other payments and
distributions under this Section 6 shall cease and the Collateral Agent shall
pay over to the Pledgor any such Collateral retained by the Collateral Agent
during the continuance of an Event of Default.
SECTION 7. RIGHT TO VOTE PLEDGED STOCK. Unless an Event of
Default shall have occurred and be continuing, the Pledgor shall have the
right, from time to time, to vote and to give consents, ratifications and
waivers with respect to the Pledged Stock.
If an Event of Default shall have occurred and be
continuing, then the Collateral Agent shall have the right to the extent
permitted or recognized by law, and the Pledgor shall take all such action as
may be necessary or appropriate to give effect to such right, to vote and to
give consents, ratifications and waivers, and take any other action with
respect to any or all of the Pledged Stock with the same force and effect as
if the Collateral Agent were the absolute and sole owner thereof.
SECTION 8. GENERAL AUTHORITY. The Pledgor hereby
irrevocably (to the extent permitted or recognized by law) appoints the
Collateral Agent its true and lawful attorney, with
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full power of substitution, in the name of the Pledgor, the Collateral Agent
and the other Secured Parties or otherwise, for the sole use and benefit of
the Collateral Agent and the other Secured Parties to the extent permitted or
recognized by law, to exercise, at any time and from time to time while an
Event of Default has occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become due upon
or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in
or with the same or the proceeds or avails thereof, as fully
and effectually as if the Collateral Agent were the absolute
owner thereof, and
(iv) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments with
reference thereto;
PROVIDED that the Collateral Agent shall give the Pledgor not less than
fifteen days' prior written notice of the time and place of any sale or other
intended disposition of any of the Collateral except any Collateral which
threatens to decline speedily in value or is of a type customarily sold on a
recognized market.
SECTION 9. REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent may exercise on behalf of the Secured
Parties all the rights of a secured party under the UCC and, in addition, the
Collateral Agent may, without obligation to resort to other security under
any other Security Documents or to recourse against any other guarantor
(including without limitation the Subsidiary), surety or other person liable,
and without being required to give any notice, except as herein provided or
as may be required by mandatory provisions of applicable law, (a) apply the
cash, if any, then held by it as Collateral as specified in Section 12, and
(b) if there shall be no such cash or if such cash shall be insufficient to
pay all the Secured Obligations in full, sell the Collateral or any parts
thereof at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery, and at
such price or prices as the Collateral Agent, acting reasonably, may deem
satisfactory. The Collateral Agent or any other Secured Party may be the
purchaser of any or all of the Collateral so sold at any public sale (or, if
the Collateral is of a type customarily sold in a recognized market or is of
a type which is the subject of widely distributed standard price quotations
at any private sale) and thereafter hold the same, absolutely, free from any
equity or right of redemption, or other right or claim of whatsoever kind.
(b) Notwithstanding anything to the contrary contained
herein or any other Loan Document, neither the Collateral Agent nor any
Secured Party shall, without first obtaining approval of a Governmental
Authority, take any action pursuant to this Pledge Agreement or any other
Loan Document which would constitute or result in an assignment of any
License held by the Pledgor or any of its Subsidiaries, or which would
constitute a transfer of control of any
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Subsidiary that holds a License (including without limitation, any voting of
the Pledged Stock), if such assignment or transfer would require, under the
existing applicable law, the prior approval of such Governmental Authority.
The Pledgor agrees to take, and the Pledgor agrees to cause each of its
Subsidiaries to take, in each case upon the occurrence and during the
continuance of an Event of Default, any action that the Collateral Agent may
reasonably request in order to obtain from any Governmental Authority such
approval as may be necessary to enable the Collateral Agent to transfer the
Pledged Securities pursuant to this Pledge Agreement, the Loan Documents and
each other agreement, instrument and document delivered to the Collateral
Agent in connection herewith and therewith, including specifically, at the
expense of the Pledgor, the use of the Pledgor's and each of its
Subsidiaries' commercially reasonable efforts to assist in obtaining approval
of such Governmental Authority for any action or transaction contemplated by
this Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file
with such Governmental Authority, the assignor's or transferor's portion of
any application or applications for consent to the transfer of any Pledged
Securities necessary or appropriate under the rules and regulations of such
Governmental Authority for approval of any sale or sales of any of the
Collateral by or on behalf of the Collateral Agent or any assumption by the
Collateral Agent of voting rights relating thereto effected in accordance
with the terms of this Agreement.
SECTION 10. EXPENSES. The Pledgor agrees that it will
forthwith upon demand pay the following amounts:
(i) the amount of any taxes which the Collateral
Agent may have been required to pay by reason of the Security
Interests or to free any of the Collateral from any Lien
thereon, and
(ii) the amount of any and all out-of-pocket
expenses, including the reasonable fees and disbursements of
counsel and of any other experts employed to evaluate, protect
or realize the value of the Collateral, which the Collateral
Agent may incur in connection with (w) the administration or
enforcement of this Pledge Agreement, including such expenses
as are incurred to preserve the value of the Collateral and
the validity, perfection, rank and value of any Security
Interest, (x) the collection, sale or other disposition of any
of the Collateral, (y) the exercise by the Collateral Agent of
any of the rights conferred upon it hereunder or (z) any
Default or Event of Default.
Any such amount not paid on demand shall bear interest for
each day until paid at the Alternate Base Rate plus the Applicable Rate plus
two percent (2%) per annum for such day.
SECTION 11. LIMITATION ON DUTY OF COLLATERAL AGENT IN
RESPECT OF COLLATERAL. Beyond the exercise of reasonable care in the custody
thereof, the Collateral Agent shall not have any duty as to any Collateral in
its possession or control or in the possession or control of any agent or
bailee or any proceeds thereof or as to the preservation of rights against
prior parties or any other rights pertaining thereto. The Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property, and shall not be liable or responsible for any loss or damage to
any of the Collateral, or for any diminution in
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<PAGE>
the value thereof, by reason of the act or omission of any agent or bailee
selected by the Collateral Agent, as the case may be, in good faith. Without
limitation of the foregoing, and except as specifically provided for in this
Pledge Agreement, or otherwise as might be required by applicable laws, the
Collateral Agent and the other Secured Parties shall have no duty to send any
notices, perform any services, vote, pay, exercise any options or make any
elections with respect to, or pay any taxes or charges associated with, or
otherwise take any other action of any kind with respect to the Collateral.
SECTION 12. APPLICATION OF PROCEEDS. Upon the occurrence
and during the continuance of an Event of Default, the proceeds of any sale
of, or other realization upon, all or any parts of the Collateral and any
cash held shall be applied by the Collateral Agent in payment of the Secured
Obligations, in accordance with the Credit Agreement.
SECTION 13. APPOINTMENT OF CO-COLLATERAL AGENTS. At any
time or times, in order to comply with any legal requirement in any
jurisdiction, the Collateral Agent may appoint another bank or trust company
or one or more other persons, either to act as co-collateral agent or
co-collateral agents, jointly with the Collateral Agent, or to act as
separate collateral agent or collateral agents on behalf of the Secured
Parties with such power and authority as may be necessary for the effectual
operation of the provisions hereof and may be specified in the instrument of
appointment.
SECTION 14. TERMINATION OF SECURITY INTERESTS; RELEASE OF
COLLATERAL.
(a) Upon the repayment in full of all Secured Obligations
and the termination of the Commitments under the Credit Agreement, the
Security Interests shall terminate and all rights to the Collateral shall
revert to the Pledgor.
(b) At any time and from time to time prior to such
termination of the Security Interests, the Collateral Agent may release all
or any part of the Collateral in accordance with the Credit Agreement,
whereupon the Security Interests in such released Collateral shall terminate
and the rights to such released Collateral shall revert to the Pledgor.
(c) Upon any such termination of the Security Interest or
release of Collateral, the Collateral Agent will, at the expense of the
Pledgor, execute and deliver to the Pledgor such documents as the Pledgor
shall reasonably request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may be.
SECTION 15. NOTICES. All notices, requests and other
communications to any party hereunder shall be given in accordance with
Section 9.01 of the Credit Agreement.
SECTION 16. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on
the part of the Collateral Agent to exercise, and no delay in exercising and
no course of dealing with respect to, any right under this Pledge Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise
by the Collateral Agent of any right under the Credit Agreement or this
Pledge Agreement preclude any other or further exercise thereof or the
exercise of any other right. The rights in this Pledge Agreement and the
Credit Agreement are cumulative and are not exclusive of any other remedies
provided by law.
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SECTION 17. SUCCESSORS AND ASSIGNS. This Pledge Agreement
is for the benefit of the Collateral Agent and the other Secured Parties and
their successors and assigns, and in the event of an assignment of all or any
of the Secured Obligations, the rights hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred with such indebtedness. This
Pledge Agreement shall be binding on the Pledgor and its assigns and the
rights of the Pledgor hereunder shall inure to the benefit of the Pledgor's
permitted assigns.
SECTION 18. CHANGES IN WRITING. Neither this Pledge
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only in writing signed by Pledgor and the Collateral
Agent with the consent of the Required Lenders (or in the case of Section 14,
all of the Lenders).
SECTION 19. ATTACHMENT. The Security Interests are intended
to attach and take effect forthwith upon the execution of this Pledge
Agreement and Pledgor acknowledges that value has been given and that the
Pledgor has rights in the Collateral. With respect to any Collateral which is
in addition to, or which is a renewal, replacement or substitution for any of
the Collateral (as constituted on the date hereto) the Security Interests
created hereby are intended to attach and take effect at the time of such
addition, renewal, replacement or substitution, and the Pledgor represents
and warrants that it shall have rights in such Collateral at the time of such
addition, renewal, replacement or substitution, as the case may be.
SECTION 20. GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 21. SEVERABILITY. If any provision hereof is
invalid or unenforceable in any jurisdiction, then, to the fullest extent
permitted by law, (i) the other provisions hereof shall remain in full force
and effect in such jurisdiction in order to carry out the intentions of the
parties hereto as nearly as may be possible; and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 22. COUNTERPARTS. This Pledge Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties hereto may
execute this Pledge Agreement by signing any such counterpart.
(Signatures Follow on Next Page)
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IN WITNESS WHEREOF, the par-ties hereto have caused this Pledge
Agreement (Borrower) to be duly executed by their respective authorized
officers as of the day and year first above written.
JATO OPERATING CORP.
By:
---------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
INTERCOMPANY NOTES
<PAGE>
Exhibit F
PLEDGE AGREEMENT
(PARENT)
This PLEDGE AGREEMENT (PARENT), dated as of July 14, 1999, is made
between JATO COMMUNICATIONS CORP., a Delaware corporation (with its
successors, the "PLEDGOR") and STATE STREET BANK AND TRUST COMPANY, as
collateral agent for and on behalf of and for the benefit of itself, the
Administrative Agent (as hereinafter defined) and the Lenders (as hereinafter
defined), including without limitation itself in its capacity at any time or
from time to time as a Lender (as hereinafter defined) (with its successors
in such capacity, the "COLLATERAL AGENT").
W I T N E S S E T H:
WHEREAS, the Pledgor owns all of the common stock of Jato Operating
Corp., a corporation organized under the laws of Delaware (with its
successors, the "SUBSIDIARY"); and
WHEREAS, the Subsidiary, the Pledgor, the Lenders, State Street
Bank and Trust Company, as Collateral Agent, and Lucent Technologies Inc., as
administrative agent (the "ADMINISTRATIVE AGENT"), are parties to a Credit
Agreement, dated as of July 14, 1999 (as the same may be amended,
supplemented, restated or replaced from time to time, the "CREDIT
AGREEMENT"), providing, subject to the terms and conditions thereof, for
making Loans by the Lenders to the Subsidiary; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and
not otherwise defined herein have, as used herein, the respective meanings
provided for therein. The following additional terms as used herein, have
the following respective meanings:
"COLLATERAL" has the meaning assigned to such term in Section 3(a).
"COLLATERAL ACCOUNT" has the meaning set forth in the Security
Agreement.
"EVENT OF DEFAULT" or "EVENTS OF DEFAULT" has any meaning assigned
to such term(s) in the Credit Agreement.
"LENDERS" and "LIEN" have the meanings assigned to such terms in
the Credit Agreement.
<PAGE>
"PLEDGED INSTRUMENTS" means (i) the intercompany notes, if any,
listed on Exhibit A hereto and (ii) any instrument required to be pledged to
the Collateral Agent pursuant to Section 3(b).
"PLEDGED SECURITIES" means the Pledged Instruments and the Pledged
Stock.
"PLEDGED STOCK" means the Subsidiary Shares and any other capital
stock or securities required to be pledged to the Collateral Agent pursuant
to Section 3(b), and in respect of which such pledge or the Security
Interests or both has not been released pursuant to Section 14 or other terms
or provisions of this Pledge Agreement.
"REQUIRED LENDERS" has the meaning assigned to such term in the
Credit Agreement.
"SECURED OBLIGATIONS" means, collectively:
(i) all amounts payable by the Pledgor under any Loan Document;
and
(ii) the Pledgor's obligations under this Pledge Agreement.
"SECURED PARTIES" means, collectively (i) the Lenders, (ii) the
Administrative Agent and (iii) the Collateral Agent.
"SECURITY AGREEMENT" means the Security Agreement (Parent), dated
as of July 14, 1999, between the Pledgor and the Collateral Agent, as the
same may be modified, amended, supplemented, restated or replaced and
supplemented and in effect from time to time.
"SECURITY INTERESTS" means the security interests in the Collateral
granted hereunder securing the Secured Obligations.
"SUBSIDIARY SHARES" means the 1,100 shares in the capital stock of
the Subsidiary owned by the Pledgor, which shares as at the date hereof are
represented by certificates Nos. CS-1 and CS-2 issued by the Subsidiary and
registered in the name of the Pledgor.
"UCC" means the Uniform Commercial Code of the State of New York.
Unless otherwise defined herein, or unless the context otherwise
requires, all terms used herein which are defined in the UCC as in effect on
the date hereof shall have the meanings ascribed thereto in the UCC.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Pledgor represents
and warrants as follows:
(a) TITLE TO PLEDGED SECURITIES. The Pledgor owns all of the
Pledged Securities, free and clear of any Liens other than the Security
Interests. All of the Pledged Stock has been duly authorized and validly
issued, is fully paid and nonassessable (if applicable), and is subject to no
options to purchase or similar rights of any person, and constitutes all and
not less than all the Pledgor's securities of any class in the capital of the
Subsidiary. The Pledgor is
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not and agrees that it will not become a party to or otherwise bound by any
agreement, other than this Pledge Agreement or any of the Loan Documents,
which might affect or restrict in any manner the rights of the Collateral
Agent or the other Secured Parties or both or any present or future holder of
any of the Pledged Stock with respect thereto.
(b) VALIDITY, PERFECTION AND PRIORITY OF SECURITY INTERESTS. Upon
the delivery in New York or Massachusetts of the Pledged Instruments and the
certificates representing the Pledged Stock to the Collateral Agent in
accordance with Section 3 hereof, the Collateral Agent will have valid and
perfected security interests in the Collateral subject to no prior Lien. If
the Collateral is held in Massachusetts, then no registration, recordation or
filing with any governmental body, agency or official is required in
connection with the execution or delivery of this Pledge Agreement or
necessary for the validity or enforceability hereof or for the perfection or
enforcement of the Security Interests. Neither the Pledgor nor the
Subsidiary has performed or will perform any acts which might prevent the
Collateral Agent from enforcing any of the terms and conditions of this
Pledge Agreement or which would limit the Collateral Agent in any such
enforcement.
SECTION 3. THE SECURITY INTERESTS. In order to secure the full and
punctual payment of the Secured Obligations in accordance with the terms
thereof, and to secure the performance of all the obligations of the Pledgor
hereunder:
(a) The Pledgor hereby assigns, transfers and pledges to the
Collateral Agent for the benefit of itself and the other Secured Parties and
grants to the Collateral Agent for the benefit of itself and the other
Secured Parties a security interest in the Pledged Securities, and all of its
rights and privileges with respect thereto, all renewals thereof,
substitutions therefor and accretions thereto, all proceeds, income and
profits thereon, and all dividends (in cash or specie) and other payments and
distributions with respect thereto and all securities and certificates
therefor which shall be from time to time held by the Collateral Agent in
safe custody (all such securities, renewals thereof, accretions thereto,
proceeds thereof and income therefrom, collectively but excluding any
Collateral released or distributable from time to time pursuant to Section 6,
Section 14 or other terms or provisions of this Pledge Agreement, the
"COLLATERAL"), as general and continuing collateral security and as a pledge,
assignment and transfer, all the foregoing being subject to the Pledgor's
rights under Sections 6 and 7. Contemporaneously with the execution and
delivery hereof, the Pledgor is delivering the Pledged Instruments and the
certificates representing the Pledged Stock.
(b) Subject to Section 6, in the event that the Subsidiary (i) at
any time issues to the Pledgor any Collateral in addition to the Subsidiary
Shares, including without limitation shares of any class or series in its
capital issued in respect of any new equity investment or other consideration
of any kind from the Pledgor, or any additional or substitute certificates
and/or shares of capital stock of any class, including without limitation any
certificates and/or shares representing a stock dividend, a stock split or a
distribution in connection with any reclassification, increase, reduction or
return of capital or issued in connection with any recapitalization or any
reorganization, options or rights, whether as an addition to, in substitution
or exchange for the Subsidiary Shares, any of the Pledged Securities or other
Collateral, or otherwise, or (ii) at any time issues any note or substitute
note, or owes any other Indebtedness to the Pledgor, the Pledgor shall accept
the same as agent for and hold the same in trust for the
3
<PAGE>
benefit of the Secured Parties and deliver the same forthwith to the
Collateral Agent in the exact form received, with the endorsement in blank of
the Pledgor accompanied by stock powers executed by the Pledgor when
necessary or appropriate, in the opinion of and in form and substance
satisfactory to, the Collateral Agent, acting reasonably, to be held by the
Collateral Agent as additional security for the Secured Obligations, and such
shall thereupon be deemed included in the Collateral for all purposes of this
Pledge Agreement and made subject to the Security Interests, and the Pledgor
will immediately pledge to and deposit with the Collateral Agent certificates
representing all such shares and such note or an instrument evidencing such
other Indebtedness or such other Collateral as additional security for the
Secured Obligations. All such shares, notes and instruments constitute
Pledged Securities and are subject to all provisions of this Pledge Agreement.
(c) The Security Interests are granted as security only and shall
not subject the Collateral Agent or any Secured Party to, or transfer or in
any way affect or modify, any obligation or liability of the Pledgor or the
Subsidiary with respect to any of the Collateral or any transaction in
connection therewith.
(d) All Pledged Instruments delivered to the Collateral Agent by
the Pledgor pursuant hereto shall be endorsed in suitable form for transfer
by endorsement and delivery by the Collateral Agent, and accompanied by any
required transfer tax stamps, all in form and substance satisfactory to the
Collateral Agent. All certificates representing Pledged Stock delivered to
the Collateral Agent by the Pledgor pursuant hereto shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment or contract notes, where applicable, in
blank, and accompanied by any required transfer tax stamps, all in form and
substance satisfactory to the Collateral Agent.
SECTION 4. FILING FURTHER ASSURANCES. (a) The Pledgor agrees
that it will, in such manner and form as the Collateral Agent may require,
execute, deliver, file and record any financing statement, specific
assignment or other paper and take any other action that the Collateral Agent
reasonably may determine to be necessary or desirable in order to create,
preserve, perfect or validate any Security Interest or to enable the
Collateral Agent to exercise and enforce its rights hereunder with respect to
any of the Collateral.
(b) The Pledgor agrees that it shall notify the Collateral Agent
in writing at least twenty (20) days prior to any change of name of the
Pledgor.
SECTION 5. FORM OF SHARES. The certificates representing any of
the Pledged Stock or other shares included in the Collateral at any time
shall be free of any restrictive or cautionary legends other than with
respect to the Securities Act of 1933 or state blue sky laws.
SECTION 6. RIGHT TO RECEIVE DISTRIBUTIONS ON COLLATERAL. (a) So
long as no Event of Default shall at any applicable time have occurred and be
continuing, the Pledgor shall have the right to receive all dividends (in
cash or specie), interest, returns of capital and other payments or
distributions made upon or with respect to, and all options and rights issued
in connection with, the Collateral.
4
<PAGE>
(b) The Collateral Agent shall, upon the occurrence and during the
continuance of an Event of Default, have the right to receive (for deposit in
the Collateral Account, if cash) and to retain as Collateral hereunder all
dividends (in cash or specie), interest and other payments and distributions
made upon or with respect to the Collateral and the Pledgor shall take all
such action as the Collateral Agent may deem necessary or appropriate to give
effect to such right. All such dividends, interest and other payments and
distributions which are received by the Pledgor, upon the occurrence and
during the continuance of an Event of Default, shall be received in trust for
the benefit of the Collateral Agent and the other Secured Parties and, if the
Collateral Agent so directs, upon the occurrence and during the continuance
of an Event of Default, shall be segregated from other funds of the Pledgor
and shall, forthwith upon demand by the Collateral Agent during the
continuance of an Event of Default, be paid over to the Collateral Agent as
Collateral in the same form as received (with any necessary endorsement, and
accompanied by any necessary stock powers executed by the Pledgor). After
all Events of Default have been cured, the Collateral Agent's right to retain
dividends, interest and other payments and distributions under this Section 6
shall cease and the Collateral Agent shall pay over to the Pledgor any such
Collateral retained by the Collateral Agent during the continuance of an
Event of Default.
SECTION 7. RIGHT TO VOTE PLEDGED STOCK. Unless an Event of Default
shall have occurred and be continuing, the Pledgor shall have the right, from
time to time, to vote and to give consents, ratifications and waivers with
respect to the Pledged Stock.
If an Event of Default shall have occurred and be continuing, then
the Collateral Agent shall have the right to the extent permitted or
recognized by law, and the Pledgor shall take all such action as may be
necessary or appropriate to give effect to such right, to vote and to give
consents, ratifications and waivers, and take any other action with respect
to any or all of the Pledged Stock with the same force and effect as if the
Collateral Agent were the absolute and sole owner thereof.
SECTION 8. GENERAL AUTHORITY. The Pledgor hereby irrevocably (to
the extent permitted or recognized by law) appoints the Collateral Agent its
true and lawful attorney, with full power of substitution, in the name of the
Pledgor, the Collateral Agent and the other Secured Parties or otherwise, for
the sole use and benefit of the Collateral Agent and the other Secured
Parties to the extent permitted or recognized by law, to exercise, at any
time and from time to time while an Event of Default has occurred and is
continuing, all or any of the following powers with respect to all or any of
the Collateral:
(i) to demand, sue for, collect, receive and give acquittance
for any and all moneys due or to become due upon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds or avails thereof, as fully and effectually
as if the Collateral Agent were the absolute owner thereof, and
5
<PAGE>
(iv) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
PROVIDED that the Collateral Agent shall give the Pledgor not less than
fifteen days' prior written notice of the time and place of any sale or other
intended disposition of any of the Collateral except any Collateral which
threatens to decline speedily in value or is of a type customarily sold on a
recognized market.
SECTION 9. REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default shall have occurred and be continuing,
the Collateral Agent may exercise on behalf of the Secured Parties all the
rights of a secured party under the UCC and, in addition, the Collateral
Agent may, without obligation to resort to other security under any other
Security Documents or to recourse against any other guarantor (including
without limitation the Subsidiary or any other Guarantor Subsidiary), surety
or other person liable, and without being required to give any notice, except
as herein provided or as may be required by mandatory provisions of
applicable law, (a) apply the cash, if any, then held by it as Collateral as
specified in Section 12, and (b) if there shall be no such cash or if such
cash shall be insufficient to pay all the Secured Obligations in full, sell
the Collateral or any parts thereof at public or private sale or at any
broker's board or on any securities exchange, for cash, upon credit or for
future delivery, and at such price or prices as the Collateral Agent, acting
reasonably, may deem satisfactory. The Collateral Agent or any other Secured
Party may be the purchaser of any or all of the Collateral so sold at any
public sale (or, if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely distributed
standard price quotations at any private sale) and thereafter hold the same,
absolutely, free from any equity or right of redemption, or other right or
claim of whatsoever kind.
(b) Notwithstanding anything to the contrary contained herein or
any other Loan Document, neither the Collateral Agent nor any Secured Party
shall, without first obtaining approval of a Governmental Authority, take any
action pursuant to this Pledge Agreement or any other Loan Document which
would constitute or result in an assignment of any License held by the
Pledgor, the Subsidiary or any of its subsidiaries, or which would constitute
a transfer of control of the Subsidiary or any of its subsidiaries that hold
a License (including without limitation, any voting of the Pledged Stock), if
such assignment or transfer would require, under the existing applicable law,
the prior approval of such Governmental Authority. The Pledgor agrees to
take, and the Pledgor agrees to cause the Subsidiary and each of its
subsidiaries to take, in each case upon the occurrence and during the
continuance of an Event of Default, any action that the Collateral Agent may
reasonably request in order to obtain from any Governmental Authority such
approval as may be necessary to enable the Collateral Agent to transfer the
Pledged Securities pursuant to this Pledge Agreement, the Loan Documents and
each other agreement, instrument and document delivered to the Collateral
Agent in connection herewith and therewith, including specifically, at the
expense of the Pledgor, the use of the Pledgor's and the Subsidiary's and
each of its subsidiaries' commercially reasonable efforts to assist in
obtaining approval of such Governmental Authority for any action or
transaction contemplated by this Agreement for which such approval is or
shall be required by law, and specifically, without limitation, upon request,
to prepare, sign and file with such Governmental Authority, the assignor's or
transferor's portion of any application or applications for consent to the
transfer of
6
<PAGE>
any Pledged Securities necessary or appropriate under the rules and
regulations of such Governmental Authority for approval of any sale or sales
of any of the Collateral by or on behalf of the Collateral Agent or any
assumption by the Collateral Agent of voting rights relating thereto effected
in accordance with the terms of this Agreement.
SECTION 10. EXPENSES. The Pledgor agrees that it will forthwith
upon demand pay the following amounts:
(i) the amount of any taxes which the Collateral Agent may have
been required to pay by reason of the Security Interests or to free
any of the Collateral from any Lien thereon, and
(ii) the amount of any and all out-of-pocket expenses, including
the reasonable fees and disbursements of counsel and of any other
experts employed to evaluate, protect or realize the value of the
Collateral, which the Collateral Agent may incur in connection with
(w) the administration or enforcement of this Pledge Agreement,
including such expenses as are incurred to preserve the value of the
Collateral and the validity, perfection, rank and value of any
Security Interest, (x) the collection, sale or other disposition of
any of the Collateral, (y) the exercise by the Collateral Agent of any
of the rights conferred upon it hereunder or (z) any Default or Event
of Default.
Any such amount not paid on demand shall bear interest for each day
until paid at the Alternate Base Rate plus the Applicable Rate plus two
percent (2%) per annum for such day.
SECTION 11. LIMITATION ON DUTY OF COLLATERAL AGENT IN RESPECT OF
COLLATERAL. Beyond the exercise of reasonable care in the custody thereof,
the Collateral Agent shall not have any duty as to any Collateral in its
possession or control or in the possession or control of any agent or bailee
or any proceeds thereof or as to the preservation of rights against prior
parties or any other rights pertaining thereto. The Collateral Agent shall
be deemed to have exercised reasonable care in the custody and preservation
of the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which it accords its own property, and shall not
be liable or responsible for any loss or damage to any of the Collateral, or
for any diminution in the value thereof, by reason of the act or omission of
any agent or bailee selected by the Collateral Agent, as the case may be, in
good faith. Without limitation of the foregoing, and except as specifically
provided for in this Pledge Agreement, or otherwise as might be required by
applicable laws, the Collateral Agent and the other Secured Parties shall
have no duty to send any notices, perform any services, vote, pay, exercise
any options or make any elections with respect to, or pay any taxes or
charges associated with, or otherwise take any other action of any kind with
respect to the Collateral.
SECTION 12. APPLICATION OF PROCEEDS. Upon the occurrence and
during the continuance of an Event of Default, the proceeds of any sale of,
or other realization upon, all or any parts of the Collateral and any cash
held shall be applied by the Collateral Agent in payment of the Secured
Obligations, in accordance with the Credit Agreement.
7
<PAGE>
SECTION 13. APPOINTMENT OF CO-COLLATERAL AGENTS. At any time or
times, in order to comply with any legal requirement in any jurisdiction, the
Collateral Agent may appoint another bank or trust company or one or more
other persons, either to act as co-collateral agent or co-collateral agents,
jointly with the Collateral Agent, or to act as separate collateral agent or
collateral agents on behalf of the Secured Parties with such power and
authority as may be necessary for the effectual operation of the provisions
hereof and may be specified in the instrument of appointment.
SECTION 14. TERMINATION OF SECURITY INTERESTS; RELEASE OF
COLLATERAL.
(a) Upon the repayment in full of all Secured Obligations and the
termination of the Commitments under the Credit Agreement, the Security
Interests shall terminate and all rights to the Collateral shall revert to
the Pledgor.
(b) At any time and from time to time prior to such termination of
the Security Interests, the Collateral Agent may release all or any part of
the Collateral in accordance with the Credit Agreement, whereupon the
Security Interests in such released Collateral shall terminate and the rights
to such released Collateral shall revert to the Pledgor.
(c) Upon any such termination of the Security Interest or release
of Collateral, the Collateral Agent will, at the expense of the Pledgor,
execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence the termination of the Security Interests or
the release of such Collateral, as the case may be.
SECTION 15. NOTICES. All notices, requests and other
communications to any party hereunder shall be given in accordance with
Section 9.01 of the Credit Agreement.
SECTION 16. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the
part of the Collateral Agent to exercise, and no delay in exercising and no
course of dealing with respect to, any right under this Pledge Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise
by the Collateral Agent of any right under the Credit Agreement or this
Pledge Agreement preclude any other or further exercise thereof or the
exercise of any other right. The rights in this Pledge Agreement and the
Credit Agreement are cumulative and are not exclusive of any other remedies
provided by law.
SECTION 17. SUCCESSORS AND ASSIGNS. This Pledge Agreement is for
the benefit of the Collateral Agent and the other Secured Parties and their
successors and assigns, and in the event of an assignment of all or any of
the Secured Obligations, the rights hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred with such indebtedness.
This Pledge Agreement shall be binding on the Pledgor and its assigns and the
rights of the Pledgor hereunder shall inure to the benefit of the Pledgor's
permitted assigns.
SECTION 18. CHANGES IN WRITING. Neither this Pledge Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only in writing signed by Pledgor and the Collateral Agent with the
consent of the Required Lenders (or in the case of Section 14, all of the
Lenders).
8
<PAGE>
SECTION 19. ATTACHMENT. The Security Interests are intended to
attach and take effect forthwith upon the execution of this Pledge Agreement
and Pledgor acknowledges that value has been given and that the Pledgor has
rights in the Collateral. With respect to any Collateral which is in
addition to, or which is a renewal, replacement or substitution for any of
the Collateral (as constituted on the date hereto) the Security Interests
created hereby are intended to attach and take effect at the time of such
addition, renewal, replacement or substitution, and the Pledgor represents
and warrants that it shall have rights in such Collateral at the time of such
addition, renewal, replacement or substitution, as the case may be.
SECTION 20. GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 21. SEVERABILITY. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction in order to carry out the intentions of the parties hereto
as nearly as may be possible; and (ii) the invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 22. COUNTERPARTS. This Pledge Agreement may be executed
in any number of counterparts, all of which taken together shall constitute
one and the same instrument and any of the parties hereto may execute this
Pledge Agreement by signing any such counterpart.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement (Parent) to be duly executed by their respective authorized
officers as of the day and year first above written.
JATO COMMUNICATIONS CORP.
By:
---------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as
Collateral Agent
By:
---------------------------------
Title:
<PAGE>
EXHIBIT A
INTERCOMPANY NOTES
None
<PAGE>
EXHIBIT G
[On Southwestern Bell Telephone Company letterhead]
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent (the "Collateral Agent"),
LUCENT TECHNOLOGIES INC.,
as Administrative Agent (the "Administrative Agent"), and
The Lenders (the "Lenders")
Under that certain Credit Agreement
Among the Collateral Agent, the Administrative Agent,
The Lenders, Jato Communications Corp. and Jato Operating Corp.:
SOUTHWESTERN BELL TELEPHONE COMPANY ("SWBT") is the
owner and landlord of certain real property and the
improvements thereon (the "Premises"), including
SWBT's Central Offices, within its seven-state
region. Pursuant to that certain Interconnection
Agreement between SWBT and JATO Communications Corp.
(together with its subsidiary, JATO Operating Corp.,
and its other subsidiaries, "JATO") made as of
_______________ ("Interconnection Agreement"),
related SWBT tariffs and applicable law, JATO has the
right to place certain of its own personal property
or equipment (collectively, "Equipment") on some or
all of the Premises from time to time. Equipment thus
placed by JATO on the Premises from time to time is
deemed, as between SWBT and JATO, to be the personal
property of JATO even though it may be placed on or
affixed to the Premises.
SWBT represents and warrants that it does not now
assert, claim or possess, and SWBT agrees that it
shall not hereafter assert, claim or possess, any
right, title or interest in, to and under any
Equipment placed or to be placed by JATO on the
Premises under the Interconnection Agreement and
related SWBT tariffs. SWBT will not oppose, subject
to the procedures set forth herein, any reasonable
attempt by the Collateral Agent or any Lender, or any
successor in interest or assignee or agent of any
such person (the "Secured Parties"), to exercise any
legal right any Secured Party may have with respect
to the Equipment, including, without limitation, to
take possession and dispose of the Equipment. In the
event that a Secured Party has cause to exercise any
of its legal rights in the Equipment and intends to
reclaim possession of all or part of the Equipment,
then upon 30 business days prior written
<PAGE>
notice to SWBT, or other mutually agreed period in
unusual circumstances, SWBT will remove, at JATO's
expense, any specified Equipment from its Central
Offices or other Premises and will make such
Equipment available to a Secured Party from a safe
and secure storage location where possession of the
Equipment may be transferred from SWBT to the
Secured Party.
Without limiting the foregoing, any right or interest
in the Equipment which SWBT now has or may hereafter
acquire because of the location or installation of
the Equipment on the Premises or otherwise
(including, without limitation, any claim by SWBT or
any party holding a lien on, or security interest in,
the Premises that claims a lien on, or security
interest in, the Equipment as a fixture attached to
the Premises) is hereby made subject, subordinate and
inferior to the right, title and interest of Secured
Parties in and to the Equipment, whether such right,
title and interest is now existing or hereafter
created. This letter shall not prohibit SWBT from
bringing any legal actions against JATO for
non-payment of charges otherwise due; provided that
no legal action shall be taken that results in the
creation of any lien on, or security interest in, or
would otherwise interfere with the rights of JATO or
any Secured Party in, any Equipment now or hereafter
placed by JATO on the Premises under the
Interconnection Agreement and related SWBT tariffs.
This letter is furnished by SWBT solely at JATO's
request and to facilitate the efforts of JATO to
finance the purchase of equipment that JATO proposes
to place on the Premises pursuant to JATO's rights
under the Interconnection Agreement, related SWBT
tariffs and applicable law, and this letter is not
intended to alter, and shall not have the effect of
altering, the rights and obligations of either JATO
or SWBT under their existing contractual and other
arrangements.
Sincerely,
----------------------------------------------------
By SOUTHWESTERN BELL, TELEPHONE COMPANY On Behalf of
Itself, its Successors and Assigns [name, title and
date]
<PAGE>
EXHIBIT H
[FORM OF SECURITY AGREEMENT (PARENT)]
SECURITY AGREEMENT (PARENT)
This SECURITY AGREEMENT (PARENT), dated as of July 14, 1999, is made
between JATO COMMUNICATIONS CORP., a Delaware corporation (with its
successors, the "Company"), and STATE STREET BANK AND TRUST COMPANY, as
Collateral Agent for the Administrative Agent and the Lenders (each term as
defined below) (with its successors in such capacity, the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the Company, Jato Operating Corp. (the "Borrower"), certain
lenders (the "Lenders"), the Collateral Agent, and Lucent Technologies Inc.,
as administrative agent (the "Administrative Agent"), are parties to a Credit
Agreement, dated as of July 14, 1999 (as the same may be amended, restated or
supplemented and in effect from time to time, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of
credit to be made by the Lenders to the Borrower;
WHEREAS, in order to induce the Lenders and the Administrative Agent
to enter into the Credit Agreement, the Company has agreed to grant a
continuing security interest in and to the Collateral (as defined below) to
secure the Borrower's and its obligations under the Loan Documents (as
defined below), including, without limitation, the Borrower's and its
obligations under the Credit Agreement; and
WHEREAS, the Lenders have appointed the Collateral Agent to act as
their collateral agent in connection with the foregoing transactions;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and
not otherwise defined herein have, as used herein, the respective meanings
provided for therein. The following additional terms, as used herein, have
the following respective meanings:
"ACCOUNTS" means all "ACCOUNTS" (as defined in the UCC) now owned or
hereafter acquired by the Company and shall also mean and include all
accounts receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Company arising from the sale, lease
or exchange of goods or other property by it or the performance of services
by it or both (including, without limitation, any such obligation which might
be characterized as an account, contract right or general intangible under
the Uniform Commercial
<PAGE>
Code in effect in any jurisdiction) and all of the Company's rights in, to
and under all purchase orders for goods, services or other property, and all
of the Company's rights to any goods, services or other property represented
by any of the foregoing (including returned or repossessed goods and unpaid
sellers' rights of rescission, replevin, reclamation and rights to stoppage
in transit) and all monies due to or to become due to the Company under all
contracts for the sale, lease or exchange of goods or other property or the
performance of services by it or both (whether or not yet earned by
performance on the part of the Company), in each case whether now in
existence or hereafter arising or acquired including, without limitation, the
right to receive the proceeds of said purchase orders and contracts and all
collateral security and guarantees of any kind given by any Person with
respect to any of the foregoing.
"BORROWER-RELATED COLLATERAL" means all Accounts, General Intangibles
and Instruments representing obligations of the Borrower to the Company or
other rights of the Company in respect of the Borrower, all books and records
of the Company pertaining to any such Accounts, General Intangibles and
Instruments and all Proceeds of or substitutions for any such Accounts,
General Intangibles and Instruments.
"COLLATERAL" has the meaning set forth in Section 3(a).
"COLLATERAL ACCOUNT" has the meaning set forth in Section 5(a).
"COPYRIGHT LICENSE" means any agreement now or hereafter in existence
granting to the Company, or pursuant to which the Company has granted to any
other Person, any right to use, copy, reproduce, distribute, prepare
derivative works, display or publish any records or other materials on which
a Copyright is in existence or may come into existence.
"COPYRIGHT SECURITY AGREEMENT" means a Copyright Security Agreement
executed and delivered by the Company in favor of the Collateral Agent, for
the benefit of the Secured Parties, substantially in the form of Exhibit D
hereto, as the same may be amended from time to time.
"COPYRIGHTS" means all the following: (i) all copyrights under the
laws of the United States or any other country (whether or not the underlying
works of authorship have been published), all registrations and recordings
thereof, all intellectual property rights to works of authorship (whether or
not published), and all applications for copyrights under the laws of the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Copyright
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, (ii) all
reissues, renewals and extensions thereof, (iii) all claims for, and rights
to sue for, past or future infringements of any of the foregoing, and (iv)
all income, royalties, damages and payments now or hereafter due or payable
with respect to any of the foregoing, including, without limitation, damages
and payments for past or future infringements thereof.
"DEPOSIT ACCOUNTS" shall mean all deposit accounts (as defined in the
UCC) of the Company including, without limitation, any demand, time, savings,
passbook or like account maintained by the Company with any bank, savings and
loan association, credit union or like organization, and all money, cash and
cash equivalents of the Company, whether or not
2
<PAGE>
deposited in any such deposit account, and all certificates and instruments,
if any, from time to time representing, evidencing or deposited into such
accounts.
"DOCUMENTS" means all "DOCUMENTS" (as defined in the UCC) or other
receipts covering, evidencing or representing goods, now owned or hereafter
acquired, by the Company.
"EQUIPMENT" means all "EQUIPMENT" (as defined in the UCC) now owned or
hereafter acquired by the Company, including, without limitation, all motor
vehicles, trucks, and trailers other than equipment acquired in connection
with Indebtedness of the type permitted under Section 6.01(viii) of the
Credit Agreement.
"EXCLUDED CONTRACTS" shall mean one or more contracts which by their
terms would be breached by the grant of the security interests created
therein pursuant to the terms of this Agreement or with respect to which the
granting of a security interest is prohibited under applicable law (it being
understood and agreed, however, that notwithstanding the foregoing, all
rights to payment for money due or to become due pursuant to any Excluded
Contract shall be subject to the security interests created pursuant to this
Agreement).
"GENERAL INTANGIBLES" means all "GENERAL INTANGIBLES" (as defined in
the UCC) now owned or hereafter acquired by the Company, including, without
limitation, (i) all obligations or indebtedness owing to the Company (other
than Accounts) from whatever source arising, (ii) all Copyright Licenses,
Copyrights, Patent Licenses, Patents, Trademark Licenses, Trademarks, rights
in intellectual property, goodwill, trade names, service marks, trade
secrets, permits and licenses, (iii) all rights or claims in respect of
refunds for taxes paid and (iv) all rights in respect of any pension plan or
similar arrangement maintained for employees of any member of the Loan
Parties other than general intangibles acquired in connection with
Indebtedness of the type permitted under Section 6.01(viii) of the Credit
Agreement.
"INSTRUMENTS" means all "INSTRUMENTS", "CHATTEL PAPER" or "LETTERS OF
CREDIT" (each as defined in the UCC) evidencing, representing, arising from
or existing in respect of, relating to, securing or otherwise supporting the
payment of, any of the Accounts, including (but not limited to) promissory
notes, drafts, bills of exchange and trade acceptances, now owned or
hereafter acquired by the Company, but Instruments shall exclude Instruments
representing Indebtedness owing to the Company by any of its subsidiaries
other than the Borrower or to the extent pledged pursuant to the Pledge
Agreement (Parent).
"INVENTORY" means all "INVENTORY" (as defined in the UCC), now owned
or hereafter acquired by the Company, wherever located, and shall also mean
and include, without limitation, all raw materials and other materials and
supplies, work-in-process and finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or added
thereto other than inventory acquired in connection with Indebtedness of the
type permitted under Section 6.01(viii) of the Credit Agreement.
"INVESTMENT PROPERTY" shall mean and include all of the Company's
investment property (as defined in the UCC) and all of the Company's other
securities (whether certificated or uncertificated), security entitlements,
financial assets, securities accounts, commodity contracts, and commodity
accounts (as each such term is defined in the UCC), including all
substitutions
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and additions thereto, all dividends, distributions and sums distributable or
payable from, upon, or in respect of such property, and all rights and
privileges incident to such property, but Investment Property shall exclude
the Company's interest in its subsidiaries other than the Borrower or to the
extent pledged pursuant to the Pledge Agreement (Parent).
"LIQUID INVESTMENTS" means an investment meeting the criteria set
forth in Section 5(e).
"LICENSES" means any license, approval or other authorization issued
by the Federal Communications Commission or any state public utility
commission or any other Governmental Authority having jurisdiction over the
telecommunications business.
"LOCKBOX ACCOUNT" means a "Lockbox Account" established under a
Lockbox Agreement.
"LOCKBOX AGREEMENT" means a Lockbox Agreement among the Company, the
Collateral Agent and a Lockbox Bank substantially in the form of Exhibit F
hereto or otherwise in form and substance reasonably satisfactory to the
Collateral Agent.
"LOCKBOX BANK" means a "money center" commercial bank selected by the
Company and satisfactory to the Collateral Agent, and each such other bank as
may from time to time enter into a Lockbox Agreement.
"PARTIAL TERMINATION DATE" means the date on or prior to which (i) the
Company shall have assigned or transferred to the Borrower all of the
Company's right, title and interest in the Licenses described on Schedule
3.05 to the Credit Agreement, in all interconnection agreements approved
pursuant to or related to such Licenses, all Accounts created through the
conduct by the Company of its business pursuant to such Licenses and all of
the Company's other assets, properties and rights related to the past or
future conduct of the business contemplated to be conducted by the licensee
pursuant to such Licenses and (ii) the chief executive officer of the Company
shall have delivered a certificate to the Collateral Agent to the effect that
all necessary approvals of Governmental Authorities of such assignments and
transfers have been obtained and all such assignments and transfers have been
effected.
"PATENT LICENSE" means any agreement now or hereafter in existence
granting to the Company, or pursuant to which the Company has granted to any
other Person, any right with respect to any Patent or any invention now or
hereafter in existence, whether patentable or not, whether a patent or
application for patent is in existence on such invention or not, and whether
a patent or application for patent on such invention may come into existence,
including, without limitation, the agreements identified in Schedule I to
Exhibit B hereto.
"PATENTS" means all the following: (i) all letters patent and design
letters patent of the United States or any other country and all applications
for letters patent and design letters patent of the United States or any
other country, including, without limitation, applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, including, without limitation, those described in
Schedule I to Exhibit B hereto, (ii) all reissues, divisions, continuations,
continuations-in-part, renewals and extensions thereof, (iii) all claims for,
and rights to sue for, past or future infringements of any of the foregoing
and (iv) all income,
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royalties, damages and payments now or hereafter due or payable with respect
to any of the foregoing, including, without limitation, damages and payments
for past or future infringements thereof.
"PATENT SECURITY AGREEMENT" means a Patent Security Agreement executed
and delivered by the Company in favor of the Collateral Agent, for the
benefit of the Secured Parties, substantially in the form of Exhibit B
hereto, as the same may be amended from time to time.
"PERFECTION CERTIFICATE" means a certificate substantially in the form
of Exhibit A hereto, completed and supplemented with the schedules and
attachments contemplated thereby to the satisfaction of the Collateral Agent,
and duly executed by any authorized officer of the Company.
"PERMITTED LIENS" means the Security Interests and the other Liens on
the Collateral of the type permitted to be created, assumed or exist pursuant
to Section 6.02 of the Credit Agreement.
"PROCEEDS" means all proceeds of, and all other profits, products,
rentals or receipts, in whatever form, arising from the collection, sale,
lease, exchange, assignment, licensing or other disposition of, or other
realization upon, collateral, including, without limitation, all claims of
the Company against third parties for loss of, damage to or destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies
of insurance in respect of, any collateral, and any condemnation or
requisition payments with respect to any collateral, in each case whether now
existing or hereafter arising.
"SECURED OBLIGATIONS" means the obligations secured under this
Agreement, including (a) all principal of and interest (including, without
limitation, any interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company, whether or not allowed or allowable as a claim
in any such case, proceeding or other action) on any Loan to the Borrower
under the Credit Agreement; (b) all other amounts payable by the Company or
the Borrower hereunder or under any other Loan Document; and (c) any renewals
or extensions of any of the foregoing.
"SECURED PARTIES" means (i) the Lenders, (ii) the Administrative Agent
and (iii) the Collateral Agent.
"SECURITY INTERESTS" means the security interests granted pursuant to
Section 3, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"TRADEMARK LICENSE" means any agreement now or hereafter in existence
granting to the Company, or pursuant to which the Company has granted to any
other Person, any right to use any Trademark, including, without limitation,
the agreements identified on Schedule I to Exhibit C hereto.
"TRADEMARKS" means all of the following: (i) all trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos, brand names, trade dress, prints
and labels on which any of the foregoing have appeared
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or appear, package and other designs, and any other source or business
identifiers, and general intangibles of like nature, and the rights in any of
the foregoing which arise under applicable law, (ii) the goodwill of the
business symbolized thereby or associated with each of them, (iii) all
registrations and applications in connection therewith, including, without
limitation, registrations and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, (iv)
all reissues, extensions and renewals thereof, (v) all claims for, and rights
to sue for, past or future infringements of any of the foregoing and (vi) all
income, royalties, damages and payments now or hereafter due or payable with
respect to any of the foregoing, including, without limitation, damages and
payments for past or future infringements thereof.'
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security Agreement
executed and delivered by the Company in favor of the Collateral Agent, for
the benefit of the Secured Parties, substantially in the form of Exhibit C
hereto, as the same may be amended from time to time.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of New York; PROVIDED that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or
non-perfection of the Security Interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"UCC" means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants as follows:
(a) The Company has good and marketable title to all of the
Collateral, free and clear of any Liens other than the Permitted Liens. All
actions have been taken that are necessary under the UCC to perfect its
interest in any Accounts in which it has an interest, as against its
assignors and creditors of its assignors.
(b) The Company has not performed any acts which might
prevent the Collateral Agent from enforcing any of the terms of this
Agreement or which would limit the Collateral Agent in any such enforcement.
Other than financing statements or other similar or equivalent documents or
instruments with respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar or equivalent
document or instrument covering all or any part of the Collateral is on file
or of record in any jurisdiction in which such filing or recording would be
effective to perfect a Lien on such Collateral. No Collateral is in the
possession of any Person (other than the Company) asserting any claim thereto
or security interest therein, except that the Collateral Agent or its
designee may have possession of Collateral as contemplated hereby.
(c) Not later than the date of the first borrowing under the
Credit Agreement, the Company shall deliver the Perfection Certificate to the
Collateral Agent. The information set forth therein shall be correct and
complete. Not later than 60 days following the date of the first Borrowing,
the Company shall furnish to the Collateral Agent file search reports from
each filing office set forth in Schedule 7 to the Perfection Certificate or
other evidence satisfactory to the
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Collateral Agent, acting on behalf of the Required Lenders confirming the
filing information set forth in such Schedule.
(d) The Security Interests constitute valid security
interests under the UCC securing the Secured Obligations to the extent that a
security interest may be created in the Collateral under the UCC. When the
Patent Security Agreement and the Trademark Security Agreement have been
filed with the United States Patent and Trademark Office, the Security
Interests shall constitute perfected security interests in all right, title
and interest of the Company in Patents or Trademarks, prior to all other
Liens and rights of others therein except for Permitted Liens, to the extent
that a perfected security interest may be created in such Collateral under
the U.S. Patent Act or the Lanham Act. When the Copyright Security Agreement
has been filed with the United States Copyright Office, the Security
Interests shall constitute perfected security interests in all right, title
and interest of the Company in Copyrights, prior to all other Liens and
rights of others therein except for the Permitted Liens to the extent a
perfected security interest may be created in such Collateral under the U.S.
Copyright Act..
(e) Other than those listed on Schedule I to the Copyright
Security Agreement, Schedule I to the Trademark Security Agreement, and
Schedule I to the Patent Security Agreement delivered on the date hereof (as
the same may be modified from time to time), the Company has no Copyright
Licenses, Copyrights, Patent Licenses, Patents, Trademark Licenses or
Trademarks.
SECTION 3. THE SECURITY INTERESTS. (a) In order to secure the
full and punctual payment of the Secured Obligations in accordance with the
terms thereof, and to secure the performance of all of the obligations of the
Company hereunder and under the other Loan Documents, the Company hereby
pledges, hypothecates, assigns by way of security, transfers and grants to
the Collateral Agent for the ratable benefit of the Secured Parties a
continuing security interest in and to all right, title and interest of the
Company in and to the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "Collateral"):
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) Investment Property;
(viii) Deposit Accounts;
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(ix) The Collateral Account, all cash deposited
therein from time to time, the Liquid Investments made pursuant to Section
5(e) and other monies and property of any kind of the Company in the
possession or under the control of the Collateral Agent;
(x) All books and records (including, without
limitation, customer lists, marketing information, credit files, price lists,
operating records, vendor and supplier price lists, sales literature,
computer programs, printouts and other computer materials and records) of the
Company pertaining to any of the Collateral;
(xi) All Proceeds of, attachments or accessions to, or
substitutions for, all or any of the Collateral described in clauses (i)
through (x) hereof;
PROVIDED, HOWEVER, the Collateral shall not include any Excluded Contracts.
(b) The Security Interests are granted as security only and
shall not subject the Collateral Agent or any other Secured Party to, or
transfer or in any way affect or modify, any obligation or liability of the
Company with respect to any of the Collateral or any transaction in
connection therewith.
(c) Notwithstanding anything herein or in the other Loan
Documents to the contrary, to the extent this Agreement or any other Security
Document purports to grant to the Collateral Agent a Lien in any License held
directly or indirectly by the Company, the Borrower or any of the Borrower's
subsidiaries, now owned or hereafter acquired, the Collateral Agent shall
only have a Lien in such Licenses at such times and to the extent that a Lien
in such Licenses is permitted under applicable law; PROVIDED, that any such
Lien shall to the extent permitted by applicable law be deemed effective as
of the later of (i) the Effective Date or (ii) the date on which the Company
was assigned, or acquired control over, the applicable License.
SECTION 4. FURTHER ASSURANCES; COVENANTS. (a)(i) The Company will
not establish or change (A) the location of its chief executive office or its
chief place of business or (B) except for sales in the ordinary course of
business, the locations where it keeps or holds any Collateral or records
relating thereto from the applicable location described in the Perfection
Certificate unless it shall have given the Collateral Agent notice thereof
and an opinion of counsel with respect thereto in accordance with Section
4(k). The Company shall not in any event change the location of any
Collateral if such change would cause the Security Interests in such
Collateral to lapse or cease to be perfected.
(ii) The Company will not change its name, identity or
corporate structure (except as expressly permitted in the Credit Agreement)
in any manner unless it shall have given the Collateral Agent prior notice
thereof and delivered an opinion of counsel with respect thereto in
accordance with Section 4(k).
(b) The Company will, from time to time, at its expense,
execute, deliver, file and record any statement, assignment, instrument,
document, agreement or other paper and take any other action (including,
without limitation, any filings with the United States Patent and Trademark
Office (including without limitation, a Patent Security Agreement and a
Trademark Security Agreement), any filings with the United States Copyright
Office (including without limitation a Copyright Security Agreement), any
filings of financing or continuation statements
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<PAGE>
under the UCC and any filings in, or agreements governed by the laws of, any
foreign jurisdictions) that from time to time may be necessary or desirable,
or that the Collateral Agent reasonably may request, in order to create,
preserve, upgrade in rank (to the extent required hereby), perfect, confirm
or validate the Security Interests or to enable the Collateral Agent and the
other Secured Parties to obtain the full benefits of this Agreement, or to
enable the Collateral Agent to exercise and enforce, or facilitate the
exercise and enforcement of, any of its rights, powers and remedies hereunder
with respect to any of the Collateral. To the extent permitted by law, the
Company hereby authorizes the Collateral Agent to execute and file financing
statements or continuation statements without the Company's signature
appearing thereon. The Company agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. The Company shall pay the costs of, or incidental to,
any recording or filing of any financing or continuation statements
concerning the Collateral.
(c) If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Company's agents or
processors, the Company shall, upon the request of the Collateral Agent
acting on the instructions of the Required Lenders, notify such warehouseman,
bailee, agent or processor of the Security Interests created hereby and
instruct such Person to hold all such Collateral for the Collateral Agent's
account subject to the Collateral Agent's instructions.
(d) The Company shall keep full and accurate books and
records relating to the Collateral, and stamp or otherwise mark such books
and records in such manner as the Required Lenders may reasonably request in
order to reflect the Security Interests. The Company shall provide the
Collateral Agent with reasonable access to such books and records during
normal business hours in accordance with Section 5.08 of the Credit Agreement.
(e) The Company will immediately deliver and pledge each
Instrument constituting Collateral to the Collateral Agent (other than checks
and drafts constituting payments in respect of Accounts, as to which the
provisions of Section 5(b) shall apply), in each case appropriately endorsed
to the Collateral Agent; PROVIDED that so long as no Event of Default (as
defined under the Credit Agreement) shall have occurred and be continuing,
the Company may retain any Instruments (i) that in the aggregate have a
principal or face amount of $1,000 or less or (ii) in which a security
interest has been and continues to be effectively created and perfected in
favor of the Collateral Agent under the other Security Documents, and the
Collateral Agent shall, promptly upon request of the Company, make
appropriate arrangements for making any Instrument pledged by the Company and
delivered to the Collateral Agent available to it for purposes of
presentation, collection or renewal (any such arrangement to be effected, to
the extent deemed appropriate to the Collateral Agent, against trust receipt
or like document). Until the Partial Termination Date, all certificates or
instruments representing or evidencing Investment Property (other than
Investment Property held by a securities intermediary, a commodities
intermediary or another financial intermediary) shall be delivered to and
held by or on behalf of the Collateral Agent, for the ratable benefit of the
Secured Parties, pursuant hereto and shall be in suitable form for transfer
by delivery, duly endorsed and shall be accompanied by undated duly executed
instruments of transfer or assignment in blank, with signatures appropriately
guaranteed, and accompanied in each case by any required transfer tax stamps,
all in form and substance satisfactory to the Collateral Agent. Until the
Partial Termination Date,
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with respect to any Investment Property held by a securities intermediary,
commodity intermediary or other financial intermediary of any kind, the
Company shall execute and deliver, and shall cause any such intermediary to
execute and deliver, a securities control agreement ("Securities Control
Agreement") among the Company, the Collateral Agent, and such intermediary
substantially in the form of Exhibit G which provides, among other things,
for the intermediary's agreement that it will comply wth such entitlement
orders, and apply any value distributed on account of any Investment Property
maintained in an account with such intermediary, as directed by the
Collateral Agent without further consent by the Company. Until the Partial
Termination Date, the Collateral Agent shall have the right, at any time in
its discretion and without notice to the Company after the occurrence and
during the continuance of an Event of Default, to cause any or all of the
Investment Property to be transferred of record into the name of the
Collateral Agent or its nominee.
(f) The Company shall use its best efforts to cause to be
collected from its account debtors, as and when due, any and all amounts
owing under or on account of each Account constituting Collateral (including,
without limitation, Accounts which are delinquent, such Accounts to be
collected in accordance with lawful collection procedures) and to apply
forthwith upon receipt thereof all such amounts as are so collected to the
outstanding balance of such Account. Unless an Event of Default (as defined
under the Credit Agreement) has occurred and is continuing and the Collateral
Agent is exercising its rights hereunder to collect Accounts, the Company may
allow in the ordinary course of business as adjustments to amounts owing
under its Accounts constituting Collateral (i) an extension or renewal of the
time or times of payment, or settlement for less than the total unpaid
balance, which the Company finds appropriate in accordance with sound
business judgment and (ii) a refund or credit due as a result of returned or
damaged merchandise or deficient service, all in accordance with the
Company's ordinary course of business consistent with its historical
collection practices. The costs and expenses (including, without limitation,
reasonable attorney's fees) of collection, whether incurred by the Company or
the Collateral Agent, shall be borne by the Company.
(g) Upon the occurrence and during the continuance of any
Event of Default under the Credit Agreement, upon the request of the Required
Lenders acting through the Collateral Agent, the Company will promptly notify
(and the Company hereby authorizes the Collateral Agent so to notify) each
account debtor in respect of any Account or Instrument constituting
Collateral that such Collateral has been assigned to the Collateral Agent
hereunder, and that any payments due or to become due in respect of such
Collateral are to be made directly to the Collateral Agent or its designee.
(h) Until the Partial Termination Date, the Company shall,
(i) as soon as practicable after the date hereof, in the case of Equipment
now owned constituting goods in which a security interest is perfected by a
notation on the certificate of title or similar evidence of the ownership of
such goods (unless such security interest may otherwise be perfected and is
so perfected), and (ii) within 10 days of acquiring any other similar
Equipment, in each case, (a) having a value in excess of $25,000 or (b)
having a value in excess of $10,000, if the aggregate of all such items owned
by the Company at any time is greater than $50,000, deliver to the Collateral
Agent any and all certificates of title, applications for title or similar
evidence of ownership of such Equipment and shall cause the Collateral Agent
to be named as lienholder on any such certificate of title or other evidence
of ownership. Until the Partial Termination Date,
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the Company shall promptly inform the Collateral Agent of any additions to or
deletions from such Equipment in excess of $10,000. Until the Partial
Termination Date, the Company shall not permit any item of Equipment to
become a fixture to real estate.
(i) The Company will, promptly upon request, provide to the
Collateral Agent all information and evidence it may reasonably request
concerning the Collateral, and in particular the Accounts, to enable the
Collateral Agent to enforce the provisions of this Agreement.
(j) Until the Partial Termination Date: The Company shall
notify the Collateral Agent immediately if it knows, or has reason to know,
that any application or registration relating to any Material Copyright,
Material Patent or Material Trademark may become abandoned, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Copyright Office, the United States Patent and Trademark Office, or
any court) regarding the Company's ownership of any Material Copyright,
Material Patent or Material Trademark, its right to register or patent the
same, or to keep and maintain the same. For purposes of this Section 4(j),
"Material Patent", "Material Trademark" and "Material Copyright" shall mean
one or more Copyrights, Patents or Trademarks, respectively, which
individually has a fair market value in excess of $10,000 or are individually
or in the aggregate otherwise material to the business of the Company. In
the event that any right to any Copyright, Copyright License, Patent, Patent
License, Trademark or Trademark License is infringed, misappropriated or
diluted by a third party, the Company shall notify the Collateral Agent
promptly after it learns thereof and shall, unless the Company shall
reasonably determine that any such action would be of negligible economic
value, promptly sue for infringement, misappropriation or dilution and to
recover any and all damages for such infringement, misappropriation or
dilution, and take such other actions as the Company shall reasonably deem
appropriate under the circumstances to protect such Copyright, Copyright
License, Patent, Patent License, Trademark or Trademark License. In no event
shall the Company, either itself or through any agent, employee or licensee,
file an application for the registration of any Copyright with the United
States Copyright Office or any Material Patent or Material Trademark with the
United States Patent and Trademark Office, or with any similar office or
agency in any other country or any political subdivision thereof, unless not
less than 30 days prior thereto it informs the Collateral Agent, and, upon
request of the Collateral Agent, executes and delivers any and all
agreements, instruments, documents and papers the Collateral Agent may
request to evidence the Security Interests in such Copyright, Patent or
Trademark and the goodwill and general intangibles of the Company relating
thereto or represented thereby, and the Company hereby constitutes the
Collateral Agent its attorney-in-fact to execute and file all such writings
for the foregoing purposes, all acts of such attorney being hereby ratified
and confirmed; such power, being coupled with an interest, shall be
irrevocable until the Secured Obligations are paid in full.
(k) Not more than four months nor less than 10 days prior to
each date on which the Company proposes to take any action contemplated by
Section 4(a)(i) or (ii), the Company shall, at its cost and expense, cause to
be delivered to the Secured Parties an opinion of counsel satisfactory to the
Collateral Agent (the Company's general counsel being deemed to be
satisfactory unless the Collateral Agent notifies the Company otherwise), to
the effect of Exhibit E hereto and in a form and substance reasonably
satisfactory to the Administrative Agent, to the
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effect that all financing statements and amendments or supplements thereto,
continuation statements and other documents required to be recorded or filed
in order to perfect and protect the Security Interests for a period,
specified in such opinion, continuing until a date not earlier than eighteen
months from the date of such opinion, against all creditors of and purchasers
from the Company have been filed in each filing office necessary for such
purpose and that all filing fees and taxes, if any, payable in connection
with such filings have been paid in full (except as noted therein with
respect to any continuation statements to be filed within such period).
SECTION 5. COLLATERAL ACCOUNT AND LOCKBOX ACCOUNT. If requested by
the Collateral Agent at any time following the occurrence of an Event of
Default (whether or not such Event of Default is subsequently cured), the
following provisions of this Section shall become effective and the Company
shall take all necessary action to give effect thereto:
(a) The Company shall establish with the Collateral Agent or
a commercial bank designated by the Collateral Agent a cash collateral
account (such account, together with any additional account so established
for such purpose from time to time, the "Collateral Account") in the name and
under the control of the Collateral Agent into which there shall be deposited
from time to time the cash proceeds of the Collateral required to be
delivered to the Collateral Agent pursuant to subsection (d) of this Section
5 or any other provision of this Agreement or any other Loan Document. Any
income received by the Collateral Agent with respect to the balance from time
to time standing to the credit of the Collateral Account, including any
interest or capital gains on Liquid Investments, shall remain, or be
deposited, in the Collateral Account. All right, title and interest in and to
the cash amounts on deposit from time to time in the Collateral Account
together with any Liquid Investments from time to time made pursuant to
subsection (e) of this Section shall vest in the Collateral Agent, shall
constitute part of the Collateral hereunder and shall not constitute payment
of the Secured Obligations until applied thereto as hereinafter provided.
(b) The Company shall deliver to the Collateral Agent
counterparts of the Lockbox Agreement executed and delivered on behalf of the
Company and the Lockbox Bank. The Company shall instruct all account debtors
and other Persons obligated in respect of all Accounts constituting
Collateral to make all payments in respect of such Accounts directly to the
Lockbox Bank (by instructing that such payments be remitted to the Post
Office Box referred to in the Lockbox Agreement with the Lockbox Bank). In
addition to the foregoing, the Company agrees that if the proceeds of any
Collateral hereunder (including the payments made in respect of such
Accounts) shall be received by it, the Company shall as promptly as possible
deposit such proceeds into the Lockbox Account. Until so deposited, all such
proceeds shall be held in trust by the Company for and as the property of the
Collateral Agent and the Secured Parties and shall not be commingled with any
other funds or property of the Company.
(c) The balance from time to time standing to the credit of
the Lockbox Account shall, except upon the occurrence and continuation of an
Event of Default (as defined under the Credit Agreement), be distributed to
the Company upon the order of the Company. Amounts on deposit in the Lockbox
Account shall, except upon the occurrence and continuation of an Event of
Default, be invested and re-invested from time to time in Permitted
Investments as the Company shall determine.
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(d) Upon the occurrence and continuation of an Event of
Default (as defined under the Credit Agreement), the Collateral Agent shall,
if so instructed by the Required Lenders, (i) deliver a Stop Transfer Notice
(as defined in the Lockbox Agreement) to the Lockbox Bank and instruct the
Lockbox Bank to transfer to the Collateral Account all funds then and
thereafter standing to the credit of the Lockbox Account with the Lockbox
Bank and (ii) apply or cause to be applied (subject to collection) any or all
of the balance from time to time standing to the credit of the Collateral
Account and such Lockbox Account in the manner specified in Section 9.
(e) Amounts on deposit in the Collateral Account and, during
the continuance of an Event of Default, the Lockbox Account shall be invested
and re-invested from time to time in such Liquid Investments as the Company
shall determine, which Liquid Investments shall be held in the name and be
under the control of the Collateral Agent, provided that, if an Event of
Default has occurred and is continuing, the Collateral Agent shall, if
instructed by the Required Lenders, liquidate any such Liquid Investments and
apply or cause to be applied the proceeds thereof to the payment of the
Secured Obligations in the manner specified in Section 9. For this purpose,
(i) each Liquid Investment shall mature within 30 days after it is acquired
by the Collateral Agent and (ii) in order to provide the Collateral Agent,
for the benefit of the Secured Parties, with a perfected security interest
therein, each Liquid Investment shall be either:
(i) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the name of the Collateral
Agent, which (together with any appropriate instruments of transfer) are
delivered to, and held by, the Collateral Agent or an agent thereof (which
shall not be the Company or any of its Affiliates) in the State of New York
or the Commonwealth of Massachusetts; or
(ii) in book-entry form and issued by the United
States and subject to pledge under applicable state law and Treasury
regulations and as to which (in the opinion of counsel to the Collateral
Agent) appropriate measures shall have been taken for perfection of the
Security Interests.
SECTION 6. GENERAL AUTHORITY. The Company hereby irrevocably
appoints the Collateral Agent its true and lawful attorney, with full power
of substitution, in the name of the Company, the Collateral Agent, the
Secured Parties or otherwise, for the sole use and benefit of the Collateral
Agent and the other Secured Parties, but at the Company's expense, to the
extent permitted by law to exercise, at any time and from time to time while
an Event of Default (as defined under the Credit Agreement) has occurred and
is continuing, all or any of the following powers with respect to all or any
of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due thereon or by
virtue thereof,
(ii) to settle, compromise, compound, prosecute or defend
any action or proceeding with respect thereto,
13
<PAGE>
(iii) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or avails thereof, as fully and effectually
as if the Collateral Agent were the absolute owner thereof, and
(iv) to extend the time of payment of any or all thereof
and to make any allowance and other adjustments with reference thereto;
PROVIDED that the Collateral Agent shall give the Company not less than ten
days' prior written notice of the time and place of any sale or other
intended disposition of any of the Collateral, except any Collateral which is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market. To the extent permitted by law, the
Company agrees that such notice constitutes "reasonable notification" within
the meaning of Section 9-504(3) of the UCC.
SECTION 7. REMEDIES UPON EVENT OF DEFAULT. (a) If any Event of
Default under the Credit Agreement has occurred and is continuing, the
Collateral Agent may, in accordance with the written instructions of the
Required Lenders, exercise on behalf of the Secured Parties all rights of a
secured party under the UCC (whether or not in effect in the jurisdiction
where such rights are exercised) and, in addition, the Collateral Agent may,
without being required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, (i) withdraw all cash and
Liquid Investments in the Collateral Account and apply such monies, Liquid
Investments and other cash, if any, then held by it as Collateral as
specified in Section 9 and (ii) if there shall be no such monies, Liquid
Investments or cash or if such monies, Liquid Investments or cash shall be
insufficient to pay all the Secured Obligations in full, sell the Collateral
or any part thereof at public or private sale, for cash, upon credit or for
future delivery, and at such price or prices as the Collateral Agent may deem
satisfactory. The Collateral Agent or any other Secured Party may be the
purchaser of any or all of the Collateral so sold at any public sale (or, if
the Collateral is of a type customarily sold in a recognized market or is of
a type which is the subject of widely distributed standard price quotations,
at any private sale) and thereafter hold the same, absolutely, free from any
right or claim of whatsoever kind. The Company will execute and deliver such
documents and take such other action as the Collateral Agent deems necessary
or advisable in order that any such sale may be made in compliance with law.
Upon any such sale the Collateral Agent shall have the right to deliver,
assign and transfer to the purchaser thereof the Collateral so sold. Each
purchaser at any such sale shall hold the Collateral so sold to it
absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Company which may be waived, and the
Company, o the extent permitted by law, hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such sale required by
Section 6 shall (1) in case of a public sale, state the time and place fixed
for such sale, and (2) in the case of a private sale, state the day after
which such sale may be consummated. Any such public sale shall be held at
such time or times within ordinary business hours and at such place or places
as the Collateral Agent may fix in the notice of such sale. At any such sale
the Collateral may be sold in one lot as an entirety or in separate parcels,
as the Collateral Agent may determine. The Collateral Agent shall not be
obligated to make any such sale pursuant to any such notice. The Collateral
Agent may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any time or
14
<PAGE>
place to which the same may be so adjourned. In case of any sale of all or
any part of the Collateral on credit or for future delivery, the Collateral
so sold may be retained by the Collateral Agent until the selling price is
paid by the purchaser thereof, but the Collateral Agent shall not incur any
liability in case of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Collateral Agent, instead of exercising
the power of sale herein conferred upon it, may in accordance with the
instructions of the Required Lenders proceed by a suit or suits at law or in
equity to foreclose the Security Interests and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(b) For the purpose of enforcing any and all rights and
remedies under this Agreement the Collateral Agent may (i) require the
Company to, and the Company agrees that it will, at its expense and upon the
request of the Collateral Agent, forthwith assemble all or any part of the
Collateral as directed by the Collateral Agent and make it available at a
place designated by the Collateral Agent which is, in the opinion of the
Collateral Agent, reasonably convenient to the Collateral Agent and the
Company, whether at the premises of the Company or otherwise, (ii) to the
extent permitted by applicable law, enter, with or without process of law and
without breach of the peace, any premise where any of the Collateral is or
may be located, and without charge or liability to it seize and remove such
Collateral from such premises, (iii) have access to and use the Company's
books and records relating to the Collateral and (iv) prior to the
disposition of the Collateral, store or transfer it without charge in or by
means of any storage or transportation facility owned or leased by the
Company, process, repair or recondition it or otherwise prepare it for
disposition in any manner and to the extent the Collateral Agent reasonably
deems appropriate and, in connection with such preparation and disposition,
use without charge any copyright, trademark, trade name, patent or technical
process used by the Company.
(c) Without limiting the generality of the foregoing, if any
Event of Default (as defined under the Credit Agreement) has occurred and is
continuing,
(i) the Collateral Agent may license, or sublicense,
whether general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any Copyrights, Patents or Trademarks included in
the Collateral throughout the world for such term or terms, on such
conditions and in such manner as the Collateral Agent shall in its sole
discretion determine;
(ii) the Collateral Agent may (without assuming any
obligations or liability thereunder), at any time and from time to time,
in its sole discretion, enforce (and shall have the exclusive right to
enforce) against any licensee or sublicensee all rights and remedies of
the Company in, to and under any Copyright Licenses, Patent Licenses or
Trademark Licenses included in the Collateral and take or refrain from
taking any action under any thereof, and the Company hereby releases the
Collateral Agent and each of the other Secured Parties from, and agrees
to hold the Collateral Agent and each of the other Secured Parties free
and harmless from and against any claims and expenses arising out of, any
lawful action so taken or omitted to be taken with respect thereto; and
15
<PAGE>
(iii) upon request by the Collateral Agent, the Company
will execute and deliver to the Collateral Agent a power of attorney, in
form and substance satisfactory to the Collateral Agent, for the
implementation of any lease, assignment, license, sublicense, grant of
option, sale or other disposition of a Copyright, Patent or Trademark
included in the Collateral or any action related thereto. In the event
of any such disposition pursuant to this Section, the Company shall
supply its know-how and expertise relating to the manufacture and sale of
the products bearing Trademarks or the products or services made or
rendered in connection with Patents, and its customer lists and other
records relating to such Patents or Trademarks and to the distribution of
said products, to the Collateral Agent.
(d) Notwithstanding anything to the contrary contained
herein or any other Loan Document, neither the Collateral Agent nor any
Secured Party shall, without first obtaining the approval of a Governmental
Authority, take any action pursuant to this Agreement or any other Loan
Document which would constitute or result in an assignment of any License
held by the Company or a transfer of control of the Company if such
assignment or transfer would require, under the existing applicable law, the
prior approval of such Governmental Authority. The Company agrees to take,
and the Company agrees to cause the Borrower and each of its Subsidiaries to
take, in each case upon the occurrence and during the continuance of an Event
of Default, any action that the Collateral Agent may reasonably request in
order to obtain from any Governmental Authority such approval as may be
necessary to enable the Collateral Agent to assign or transfer control of the
Licenses pursuant to this Agreement, the Loan Documents and each other
agreement, instrument and document delivered to the Collateral Agent in
connection herewith and therewith, including specifically, at the expense of
the Company, the use of the Company's and the Borrower's and each of its
Subsidiaries' commercially reasonable efforts to assist in obtaining approval
of such Governmental Authority for any action or transaction contemplated by
this Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file
with such Governmental Authority, the assignor's or transferor's portion of
any application or applications for consent to the assignment of any License
or transfer of control necessary or appropriate under the rules and
regulations of such Governmental Authority for approval of any sale or sales
of any of the Collateral by or on behalf of the Collateral Agent.
SECTION 8. LIMITATION ON DUTY OF COLLATERAL AGENT IN RESPECT OF
COLLATERAL. Beyond the exercise of reasonable care in the custody thereof,
the Collateral Agent shall have no duty as to any Collateral in its
possession or control or in the possession or control of any agent or bailee
or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto. The Collateral Agent shall
be deemed to have exercised reasonable care in the custody of the Collateral
in its possession if the Collateral is accorded treatment substantially equal
to that which it accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by the Collateral Agent in good faith; PROVIDED, HOWEVER, nothing in
this Section 8 shall be deemed to prejudice any rights of the Company against
such warehouseman, carrier, forwarding agency, consignee or other agent or
bailee.
16
<PAGE>
SECTION 9. APPLICATION OF PROCEEDS. Upon the occurrence and during
the continuance of an Event of Default (as defined under the Credit
Agreement), the proceeds of any sale of, or other realization upon, all or
any part of the Collateral and any cash held in the Collateral Account shall
be applied by the Collateral Agent in accordance with the Credit Agreement.
SECTION 10. APPOINTMENT OF CO-COLLATERAL AGENTS. At any time or
times, in order to comply with any legal requirement in any jurisdiction, the
Collateral Agent may appoint another bank or trust company or one or more
other persons, either to act as co-agent or co-agents, jointly with the
Collateral Agent, or to act as separate agent or agents on behalf of the
Secured Parties with such power and authority as may be necessary for the
effectual operation of the provisions hereof and may be specified in the
instrument of appointment.
SECTION 11. EXPENSES. In the event that the Company fails to comply
with the provisions of the Loan Documents or this Agreement, such that the
value of any Collateral or the validity, perfection, rank or value of any
Security Interest is thereby diminished or potentially diminished or put at
risk, the Collateral Agent if requested by the Required Lenders (i) shall
deliver written notice of such non-compliance to the Company requesting that
it cure such non-compliance, and (ii) if within ten Business Days after
delivery of such notice the Company has failed to cure such non-compliance,
the Collateral Agent may, but shall not be required to, effect such
compliance on behalf of the Company, and the Company shall reimburse the
Collateral Agent for the reasonable costs thereof on demand. All insurance
expenses and all expenses of protecting, storing, warehousing, appraising,
insuring, handling, maintaining and shipping the Collateral, any and all
excise, property, sales, and use taxes imposed by any state, federal, or
local authority on any of the Collateral, or in respect of periodic
appraisals and inspections of the Collateral to the extent the same may
reasonably be requested by the Required Lenders acting through the Collateral
Agent from time to time, or in respect of the sale or other disposition
thereof, shall be borne and paid by the Company; and if the Company fails to
promptly pay any portion thereof when due, except, if no Event of Default (as
defined under the Credit Agreement) has occurred and is continuing, with
respect to taxes which are being contested as permitted by Section 5.05 of
the Credit Agreement, the Collateral Agent or any other Secured Party may, at
its option, but shall not be required to, pay the same and charge the
Company's account therefor, and the Company agrees to reimburse the
Collateral Agent or such Secured Party therefor on demand. All reasonable
sums so paid or incurred by the Collateral Agent or any other Secured Party
for any of the foregoing and any and all other sums for which the Company may
become liable hereunder and all costs and expenses (including attorneys'
fees, legal expenses and court costs) reasonably incurred by the Collateral
Agent or any other Secured Party in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement, shall,
together with interest thereon for each day until paid at the Alternate Base
plus the Applicable Rate plus interest at a rate per annum equal to two
percent (2%) for such day, be additional Secured Obligations hereunder.
SECTION 12. TERMINATION OF SECURITY INTERESTS; RELEASE OF
COLLATERAL. (a) Upon the repayment in full of all Secured Obligations and
the termination of the Commitments, the Security Interests shall terminate
and all rights to the Collateral shall revert to the Company. Upon the
Partial Termination Date, the Security Interests in all Collateral other than
Borrower-Related Collateral shall terminate and all rights in the Collateral
other than Borrower-Related Collateral shall revert to the Company.
17
<PAGE>
(b) At any time and from time to time prior to such
termination of the Security Interests, the Collateral Agent shall release the
Collateral in accordance with Section 5(c) hereof.
(c) If any Collateral is sold, leased, exchanged, assigned
or otherwise disposed of, or with respect to which on option has been
granted, in accordance with and as permitted under the Credit Agreement, the
Security Interests created hereby in such item (but not in any Proceeds
arising from such sale or exchange) shall cease immediately without any
further action on the part of the Collateral Agent.
(d) Upon any such termination of the Security Interests or
release of Collateral, the Collateral Agent will, at the expense of the
Company, execute and deliver to the Company such documents as the Company
shall reasonably request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may be.
SECTION 13. NOTICES. All notices, approvals, requests, demands and
other communications hereunder shall be given in accordance with Section 9.01
of the Credit Agreement.
SECTION 14. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part
of the Collateral Agent to exercise, and no delay in exercising and no course
of dealing with respect to, any right under this Agreement or any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise by the Collateral Agent of any right under this Agreement or any
other Loan Document preclude any other or further exercise thereof or the
exercise of any other right. The rights in this Agreement or the Loan
Documents are cumulative and are not exclusive of any other remedies provided
by law.
SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement is for the
benefit of the Collateral Agent and the other Secured Parties and their
successors and assigns, and in the event of an assignment of all or any of
the Secured Obligations, the rights hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred with such indebtedness.
This Agreement shall be binding on the Company and its successors and assigns
and the rights of the Company hereunder shall inure to the benefit of the
Company's successors and permitted assigns.
SECTION 16. CHANGES IN WRITING. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Company and the Collateral Agent with the
consent of the Required Lenders.
SECTION 17. SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in favor of the Collateral
Agent and the other Secured Parties in order to carry out the intentions of
the parties hereto as nearly as may be possible; and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
18
<PAGE>
SECTION 18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart.
SECTION 19. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) The Company hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of
or relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement or any
other Loan Document shall affect any right that either Agent or any Lender
may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against the Parent, the Borrower or
their properties in the courts of any jurisdiction.
(c) The Company hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each of the Parent and the Borrower hereby irrevocably
appoints and designates CT Corporation System, whose address is 1633
Broadway, New York, New York 10019, or any other person having and
maintaining a place of business in the State of New York whom the Parent or
the Borrower may from time to time hereafter designate (having given 30 days'
notice thereof to the Administrative Agent, each Lender and the Collateral
Agent), as the true and lawful attorney and duly authorized agent for
acceptance of service of legal process of the Parent and the Borrower.
Without prejudice to the foregoing, each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in Section
9.01 of the Credit Agreement. Nothing in this Agreement or any other Loan
Document will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 20. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER
19
<PAGE>
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 21. WAIVER OF IMMUNITY. To the extent that the Company has
or hereafter may acquire any immunity from jurisdiction of any court or from
any legal process (whether through service or notice, attachment prior to
judgment, attachment in aid or execution, or otherwise) with respect to
itself or its property, the Company hereby irrevocably waives such immunity
in respect of its obligations hereunder and under the other Loan Documents to
the extent permitted by applicable law and, without limiting the generality
of the foregoing, agrees that the waivers set forth in this Section shall
have effect to the fullest extent permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States of America and are intended to be
irrevocable for purposes of such Act.
(Signatures Follow on Next Page)
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement (Parent) to be duly executed by their respective authorized
officers as of the day and year first above written.
JATO COMMUNICATIONS CORP
By:
-------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
TO
SECURITY
AGREEMENT
PERFECTION CERTIFICATE
The undersigned, [ ], Chief Executive Officer of
JATO COMMUNICATIONS CORP., a Delaware corporation (the "Company"), hereby
certifies with reference to the Security Agreement (Parent), dated as of July
14, 1999, between the Company and State Street Bank and Trust Company, as
Collateral Agent (terms defined therein or as provided therein being used
herein as therein defined), to the Administrative Agent and each Lender as
follows:
SECTION 1. NAMES.
(a) The exact corporate name of the Company as it appears in its
certificate of incorporation is as follows: [____________________________]
(b) The Company has not had any other corporate name since its
organization.
(c) Except as set forth in Schedule 1, the Company has not changed
its identity or corporate structure in any way within the past five years.
(d) The following is a list of all other names (including trade
names or similar appellations) used by the Company or any of its divisions or
other business units at any time during the past five years: [_________________]
SECTION 2. CURRENT LOCATIONS. As of the date hereof, (a) the chief
executive office of the Company is located at the following address:
NAME MAILING ADDRESS
---- ---------------
(b) The following are all the locations where the Company
maintains any books or records relating to any Accounts:
NAME MAILING ADDRESS
---- ---------------
Exhibit A-1
<PAGE>
(c) The following are all the places of business of the Company
not identified above:
NAME MAILING ADDRESS
---- ---------------
(d) The following are all the locations not identified above
where the Company maintains any Inventory:
NAME MAILING ADDRESS
---- ---------------
(e) The following are all the locations not identified above
where the Company maintains any Equipment or contemplates maintaining at any
time when the Loans are to be outstanding:
NAME MAILING ADDRESS
---- ---------------
(f) The following are the names and addresses of all Persons
other than the Company which have possession of any of the Company's Inventory:
NAME MAILING ADDRESS
---- ---------------
(g) The following are the names and addresses of all Persons
other than the Company which have possession of any of the Company's Investment
Property:
NAME MAILING ADDRESS
---- ---------------
Exhibit A-2
<PAGE>
SECTION 3. PRIOR LOCATIONS.
(a) Set forth below is the information required by subparagraphs
(a), (b) and (c) of paragraph 2 with respect to each location or place of
business maintained by the Company at any time during the past five years:
(b) Set forth below is the information required by subparagraphs
(d) and (e) of paragraph 2 with respect to each location or bailee where or
with whom Inventory has been lodged at any time during the past four months:
SECTION 4. UNUSUAL TRANSACTIONS. All Accounts have been originated
by the Company and all Inventory and Equipment has been acquired by the
Company in the ordinary course of its business.
SECTION 5. FILE SEARCH REPORTS. Attached hereto as Schedule 5(a) is
a true copy of a file search report from the Uniform Commercial Code filing
officer in each jurisdiction identified in paragraph 2 or 3 above with
respect to each name set forth in paragraph 1. Attached hereto as Schedule
5(b) is a true copy of each financing statement or other filing identified in
such file search reports.
SECTION 6. UCC FILINGS. (a) A duly signed financing statement on
Form UCC-1 in substantially the form of Schedule 6 hereto has been duly
delivered to the Collateral Agent for filing in the Uniform Commercial Code
filing office in each jurisdiction identified in paragraph 2 hereof.
Attached hereto as Schedule 6(b) is a true copy of each such filing duly
acknowledged by the filing officer.
SECTION 7. SCHEDULE OF FILINGS. Attached hereto as Schedule 7 is a
schedule setting forth filing information with respect to the filings
described in paragraph 6 above.
SECTION 8. FILING FEES. All filing fees and taxes payable in
connection with the filings described in paragraph 6 above have been paid.
Exhibit A-3
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this _________ day of
[_____________________], 1999.
----------------------------------
Name:
Title:
Exhibit A-4
<PAGE>
SCHEDULE 1
CHANGE IN CORPORATE STRUCTURE
<PAGE>
SCHEDULE 6(b)
UCC FILINGS
<PAGE>
SCHEDULE 7
SCHEDULE OF FILINGS
<PAGE>
EXHIBIT B
TO
SECURITY
AGREEMENT
PATENT SECURITY AGREEMENT
(PATENTS, PATENT APPLICATIONS AND PATENT LICENSES)
WHEREAS, JATO COMMUNICATIONS CORP., a Delaware corporation (herein
referred to as "Grantor") owns the Patents (as defined in the Security
Agreement referred to below) (including design patents and applications for
patents) listed on Schedule I annexed hereto, and is a party to the Patent
Licenses (as defined in the Security Agreement referred to below) identified
in Schedule I annexed hereto;
WHEREAS, Grantor, Jato Operating Corp., certain lenders, State Street
Bank and Trust Company, as Collateral Agent, and Lucent Technologies Inc., as
administrative agent, are parties to a Credit Agreement of even date herewith
(as the same may be amended and in effect from time to time among said
parties and such lenders (the "Lenders") as may from time to time be parties
thereto, the "Credit Agreement");
WHEREAS, pursuant to the terms of the Security Agreement (Parent) of
even date herewith (as said Agreement may be amended and in effect from time
to time, the "Security Agreement") between Grantor and State Street Bank and
Trust Company, as collateral agent for the Secured Parties referred to
therein (in such capacity, together with its successors in such capacity,
"Grantee"), Grantor has granted to Grantee for the benefit of such Secured
Parties a continuing security interest in substantially all the assets of
Grantor, including all right, title and interest of Grantor in, to and under
the Patent Collateral (as defined herein) whether now owned or existing or
hereafter acquired or arising, to secure the Secured Obligations (as defined
in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the "Patent
Collateral"), whether now owned or existing or hereafter acquired or arising:
(i) each Patent (including each design patent and patent
application), including, without limitation, each Patent (including each
design patent and patent application) referred to in Schedule I annexed
hereto;
(ii) each Patent License, including, without limitation,
each Patent License identified in Schedule I annexed hereto; and
(iii) all proceeds of and revenues from the foregoing,
including, without limitation, all proceeds of and revenues from any
claim by Grantor against third
Exhibit B-1
<PAGE>
parties for past, present or future infringement of any Patent (including
any design patent), including, without limitation, any Patent referred to
in Schedule I annexed hereto (including, without limitation, any such
Patent issuing from any application referred to in Schedule I annexed
hereto), and all rights and benefits of Grantor under any Patent License,
including, without limitation, any Patent License identified in Schedule I
annexed hereto.
Until the Partial Termination Date, Grantor hereby irrevocably
constitutes and appoints Grantee and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
power and authority in the name of Grantor or in its name, from time to time,
in Grantee's discretion, so long as any Event of Default (as defined in the
Credit Agreement) has occurred and is continuing, to take with respect to the
Patent Collateral any and all appropriate action which Grantor might take
with respect to the Patent Collateral and to execute any and all documents
and instruments which may be necessary or desirable to carry out the terms of
this Patent Security Agreement and to accomplish the purposes hereof.
Until the Partial Termination Date, except to the extent not prohibited
in the Security Agreement, Grantor agrees not to sell, license, exchange,
assign or otherwise transfer or dispose of, or grant any rights with respect
to, or mortgage or otherwise encumber, any of the foregoing Patent Collateral.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor
does hereby further acknowledge and affirm that the rights and remedies of
Grantee with respect to the security interest in the Patent Collateral made
and granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which are incorporated by reference herein as if
fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to
be duly executed by its officer thereunto duly authorized as of the _________
day of _____________________, _________.
JATO COMMUNICATIONS CORP.
By:
-------------------------------------
Name:
Title:
Exhibit B-2
<PAGE>
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
--------------------------------
Name:
Title:
Exhibit B-3
<PAGE>
SCHEDULE I
TO PATENT
SECURITY
AGREEMENT
PATENTS
A. U.S. PATENTS AND DESIGN PATENTS
I.D. NO. PATENT NO. ISSUE DATE TITLE
B. U. S. PATENT APPLICATIONS
SERIAL NO. DATE FILE TITLE
<PAGE>
EXHIBIT C
TO
SECURITY
AGREEMENT
TRADEMARK SECURITY AGREEMENT
(TRADEMARKS, TRADEMARK REGISTRATIONS, TRADEMARK
APPLICATIONS AND TRADEMARK LICENSES)
WHEREAS, JATO COMMUNICATIONS CORP., a Delaware corporation (herein
referred to as "Grantor"), owns the Trademarks (as defined in the Security
Agreement referred to below) listed on Schedule I annexed hereto, and is a
party to the Trademark Licenses (as defined in the Security Agreement
referred to below) identified in Schedule 1 annexed hereto;
WHEREAS, Grantor, Jato Operating Corp., certain lenders, State Street
Bank and Trust Company, as Collateral Agent, and Lucent Technologies Inc., as
administrative agent, are parties to a Credit Agreement of even date herewith
(as the same may be amended and in effect from time to time among said
parties and such lenders (the "Lenders") as may from time to time be parties
thereto, the "Credit Agreement");
WHEREAS, pursuant to the terms of the Security Agreement (Parent) of
even date herewith (as said Agreement may be amended and in effect from time
to time, the "Security Agreement") between Grantor and State Street Bank and
Trust Company, as collateral agent for the Secured Parties referred to
therein (in such capacity, together with its successors in such capacity,
"Grantee"), Grantor has granted to Grantee for the benefit of such Secured
Parties a security interest in substantially all the assets of Grantor,
including all right, title and interest of Grantor in, to and under the
Trademark Collateral (as defined herein), whether now owned or existing or
hereafter acquired or arising, to secure the Secured Obligations (as defined
in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the "Trademark
Collateral"), whether now owned or existing or hereafter acquired or arising:
(i) each Trademark, including, without limitation, each
Trademark application referred to in Schedule I annexed hereto, and all
of the goodwill of the business connected with the use of, or symbolized
by, each such Trademark;
(ii) each Trademark License, including, without
limitation, each Trademark License identified in Schedule I annexed
hereto, and all of the goodwill of the
Exhibit C-1
<PAGE>
business connected with the use of, or symbolized by, each Trademark
licensed pursuant thereto; and
(iii) all proceeds of and revenues from the foregoing,
including, without limitation, all proceeds of and revenues from any
claim by Grantor against third parties for past, present or future unfair
competition with, or violation of intellectual property rights in
connection with or injury to, or infringement or dilution of, any
Trademark, including, without limitation, any Trademark referred to in
Schedule I hereto, and all rights and benefits of Grantor under any
Trademark License, including, without limitation, any Trademark License
identified in Schedule I hereto, or for injury to the goodwill associated
with any of the foregoing.
Until the Partial Termination Date, Grantor hereby irrevocably
constitutes and appoints Grantee and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
power and authority in the name of Grantor or in its name, from time to time,
in Grantee's discretion, so long as any Event of Default (as defined in the
Credit Agreement) has occurred and is continuing, to take with respect to the
Trademark Collateral any and all appropriate action which Grantor might take
with respect to the Trademark Collateral and to execute any and all documents
and instruments which may be necessary or desirable to carry out the terms of
this Trademark Security Agreement and to accomplish the purposes hereof.
Until the Partial Termination Date, except to the extent not prohibited
in the Security Agreement (Parent), Grantor agrees not to sell, license,
exchange, assign or otherwise transfer or dispose of, or grant any rights
with respect to, or mortgage or otherwise encumber, any of the foregoing
Trademark Collateral.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor
does hereby further acknowledge and affirm that the rights and remedies of
Grantee with respect to the security interest in the Trademark Collateral
made and granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which are incorporated by reference herein as if
fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security Agreement
to be duly executed by its officer thereunto duly authorized as of the ______
day of _____________________, ________.
JATO COMMUNICATIONS CORP.
By:
-----------------------------------
Name:
Title:
Exhibit C-2
<PAGE>
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
--------------------------------------
Name:
Title:
Exhibit C-3
<PAGE>
SCHEDULE I
TO
TRADEMARK
SECURITY
AGREEMENT
U.S. TRADEMARKS AND TRADEMARK REGISTRATIONS
A. U.S. TRADEMARKS AND TRADEMARK REGISTRATIONS
REG. NO. REG. DATE MARK
-------- --------- ----
B. U.S. TRADEMARK APPLICATIONS
SERIAL NO. DATE FILED MARK
---------- ---------- ----
EXCLUSIVE TRADEMARK LICENSES
PARTIES
NAME OF DATE OF
AGREEMENT LICENSOR LICENSEE AGREEMENT SUBJECT MATTER
--------- -------- -------- --------- --------------
<PAGE>
EXHIBIT D TO
SECURITY
AGREEMENT
COPYRIGHT SECURITY AGREEMENT
(COPYRIGHTS, COPYRIGHT REGISTRATIONS, COPYRIGHT
APPLICATIONS AND COPYRIGHT LICENSES)
WHEREAS, JATO COMMUNICATIONS CORP., a Delaware corporation (herein
referred to as "Grantor") owns the Copyrights (as defined in the Security
Agreement referred to below) listed on Schedule I annexed hereto, and is a
party to the Copyright Licenses (as defined in the Security Agreement
referred to below) identified in Schedule I annexed hereto;
WHEREAS, Grantor, Jato Operating Corp., certain lenders, State Street
Bank and Trust Company, as Collateral Agent, and Lucent Technologies Inc., as
administrative agent, are parties to a Credit Agreement of even date herewith
(as the same may be amended and in effect from time to time among said
parties and such lenders (the "Lenders") as may from time to time be parties
thereto, the "Credit Agreement");
WHEREAS, pursuant to the terms of the Security Agreement (Parent) of
even date herewith (as said Agreement may be amended and in effect from time
to time, the "Security Agreement") between Grantor and State Street Bank and
Trust Company, as collateral agent for the Secured Parties referred to
therein (in such capacity, together with its successors in such capacity, the
"Grantee"), Grantor has granted to Grantee for the benefit of such Secured
Parties a security interest in substantially all the assets of the Grantor,
including all right, title and interest of Grantor in, to and under the
Copyright Collateral (as defined herein), whether now owned or existing or
hereafter acquired or arising, to secure the Secured Obligations (as defined
in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the "Copyright
CoIlateral"), whether now owned or existing or hereafter acquired or arising:
(i) each Copyright, including, without limitation, each
Copyright referred to in Schedule I annexed hereto;
(ii) each Copyright License, including, without
limitation, each Copyright License identified in Schedule I annexed
hereto; and
(iii) all proceeds of and revenues from the foregoing,
including, without limitation, all proceeds of and revenues from any
claim by Grantor against third
Exhibit D-1
<PAGE>
parties for past, present or future infringement of any Copyright,
including, without limitation, any Copyright referred to in Schedule I
annexed hereto, and all rights and benefits of Grantor under any Copyright
License, including, without limitation, any Copyright License identified
in Schedule I annexed hereto.
Until the Partial Termination Date, Grantor hereby irrevocably
constitutes and appoints Grantee and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
power and authority in the name of Grantor or in its name, from time to time,
in Grantee's discretion, so long as any Event of Default (as defined in the
Credit Agreement) has occurred and is continuing, to take with respect to the
Copyright Collateral any and all appropriate action which Grantor might take
with respect to the Copyright Collateral and to execute any and all documents
and instruments which may be necessary or desirable to carry out the terms of
this Copyright Security Agreement and to accomplish the purposes hereof.
Until the Partial Termination Date, except to the extent not prohibited
in the Security Agreement, Grantor agrees not to sell, license, exchange,
assign or otherwise transfer or dispose of, or grant any rights with respect
to, or mortgage or otherwise encumber, any of the foregoing Copyright
Collateral.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor
does hereby further acknowledge and affirm that the rights and remedies of
Grantee with respect to the security interest in the Copyright Collateral
made and granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which are incorporated by reference herein as if
fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its officer thereunto duly authorized as of the _____ day
of __________________, ______.
JATO COMMUNICATIONS CORP.
By:
----------------------------------
Name:
Title:
Exhibit D-2
<PAGE>
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
----------------------------------
Name:
Title:
Exhibit D-3
<PAGE>
SCHEDULE I
TO
COPYRIGHT
SECURITY
AGREEMENT
COPYRIGHTS AND COPYRIGHT REGISTRATION
REGISTRATION NO. REG. DATE TITLE
---------------- --------- -----
COPYRIGHT APPLICATIONS
SERIAL NO. DATE FILED TITLE
---------- ---------- -----
COPYRIGHT LICENSES
PARTIES
NAME OF DATE OF
AGREEMENT LICENSOR LICENSEE AGREEMENT SUBJECT MATTER
--------- -------- -------- --------- --------------
<PAGE>
EXHIBIT E TO
SECURITY
AGREEMENT
OPINION OF
COUNSEL FOR THE COMPANY
The Security Agreement creates and constitutes as security for the
Secured Obligations (as defined in the Security Agreement and including any
future obligations which are Secured Obligations), in favor of the Collateral
Agent for the ratable benefit of the Secured Parties, a valid security
interest in all right, title and interest of the Company in the Collateral
and all right, title and interest of the Company in the Collateral Account.
The security interests of the Collateral Agent in all right, title and
interest of the Company in the Collateral created by the Security Agreement
constitute perfected security interests under the Uniform Commercial Code, as
in effect in the State of New York ("UCC"), the United States Copyright Act
("CA"), the United States Patent Act ("PA") and the United States Trademark
Act ("TA"), to the extent that a security interest therein may be perfected
under the UCC, the CA, the PA or the TA. Insofar as the priority thereof is
governed by the UCC, the priority of the security interests created by the
Security Agreement in the Collateral in which the Company has rights on the
date hereof will be the same with respect to Loans made or deemed made
pursuant to the Credit Agreement after the date hereof, except to the extent
that any priority may be affected by any security interest, lien or other
encumbrance imposed by law in favor of any government or governmental
authority or agency. Unless otherwise specifically defined herein, each term
defined herein has the meaning assigned to such term in the Security
Agreement.
With respect to the enforceability of the Security Documents, we express
no opinion as to the availability of specific performance. Moreover, our
opinion with respect to the enforceability of the Security Documents is
subject to the further qualification that certain remedial provisions thereof
may be limited by the law of the State of New York and applicable law of the
United States of America, but such laws do not, in our opinion, make the
remedies afforded thereby inadequate for the practical realization of the
benefits of the security intended to be provided thereby.
Exhibit E-1
<PAGE>
EXHIBIT F TO
SECURITY
AGREEMENT
LOCKBOX AGREEMENT
LOCKBOX AGREEMENT, dated as of [_________________], [____________],
among JATO COMMUNICATIONS CORP., a Delaware corporation (the "Company"),
STATE STREET BANK AND TRUST COMPANY, as Collateral Agent under the Security
Agreement referred to below (the "Collateral Agent"), and [________________]
(the "Lockbox Bank").
W I T N E S S E T H :
WHEREAS, the Company and the Collateral Agent have entered into a
Security Agreement (Parent), dated as of July 14, 1999 (as the same may be
amended from time to time, the "Security Agreement") under which the Company
has granted a continuing security interest in and to the Collateral (as
defined in the Security Agreement) to secure its obligations under the Loan
Documents (defined as provided in the Security Agreement);
WHEREAS, pursuant to the Security Agreement, the Company has agreed to
instruct certain obligors to make payments to (the "Post Office Box"); and
WHEREAS, the Company has requested that the Lockbox Bank establish and
maintain a bank account as further described herein, and the Lockbox Bank is
willing to establish and maintain such account pursuant to this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. POST OFFICE BOX; DEPOSITS INTO THE LOCK BOX ACCOUNT. (a)
The Lockbox Bank shall have unrestricted and exclusive access to the Post
Office Box for the purpose of collecting mail for delivery and deposit into
the Lockbox Account (as defined below) (even though addressed to the Company)
and shall collect the mail delivered thereto on each business day in
accordance with the Lockbox Bank's regular collection schedule.
(b) The contents of the mail collected from the Post Office Box,
whether consisting of cash, checks, drafts, bills of exchange, money orders
or other instruments or documents, shall be promptly deposited by the Lockbox
Bank into the Lockbox Account. The term "Lockbox Account" means account no.
[___________________] opened and maintained by the Lockbox Bank for the
Company.
(c) The Lockbox Bank shall prepare one photocopy of the front and
back of each check, draft, bill of exchange, money order or other instrument
or document (collectively,
Exhibit F-1
<PAGE>
hereinafter called the "checks"; individually, a "check") with the date of
deposit to be shown on the bottom edge thereof. Attachments received with
payments, such as detachable stubs, together with any correspondence and the
individual envelope, are to be affixed to the photocopy of the check. All of
the above instruments will be delivered by the Lockbox Bank to the Company on
a same day basis.
(d) The Lockbox Bank shall endorse all checks which appear to be
in order for deposit into the Lockbox Account and shall process each item
under the same terms and conditions as would apply if the Lockbox Bank or the
Company had made the deposit directly. The Lockbox Bank shall endorse all
such checks as follows:
"DEPOSIT TO THE ACCOUNT OF AND WITHOUT
PREJUDICE TO THE WITHIN NAMED PAYEE
LOCKBOX SERVICES"
This endorsement may be made by use of a payee endorsement stamp.
(e) Undated checks may be dated by the Lockbox Bank to agree with
the postmark date and included in the regular deposit. Checks incorrectly
made out, where numerical and written amounts differ, are to be deposited for
the written amount only. Checks bearing no signature are to be stamped with
a "Kindly Refer to Maker" stamp and processed. Third-party checks may be
deposited into the Lockbox Account if properly endorsed.
(f) Checks bearing the legend "Payment in Full" or words of
similar import, either typed or handwritten, and checks that the Lockbox
Bank, in its normal banking practices and in its sole discretion, decides to
submit to the special attention of the Company or the Collateral Agent, shall
be withheld from the clearing system and sent to the Company or, at any time
after receipt by the Lockbox Bank of written notice from (which notice may be
delivered only upon the occurrence and during the continuation of an Event of
Default (as defined in the Credit Agreement)) the Collateral Agent, to the
entity designated in a written notice from the Collateral Agent. Should the
Lockbox Bank by reason of the exercise of its judgment, or through
inadvertence or oversight, process any of the checks covered by this Section
1(f) for collection and credit such checks to the Lockbox Account, the
Company and the Collateral Agent agree that the Lockbox Bank shall incur no
responsibility or liability.
(g) The details representing deposited items, adding machine
tapes, advice of credit, etc., together with all other materials rejected for
various reasons, and so marked, shall be sent by the Lockbox Bank to the
Company or, at any time after receipt by the Lockbox Bank of written notice
(which notice may be delivered only upon the occurrence and during the
continuation of an Event of Default (as defined in the Credit Agreement))
from the Collateral Agent, to the entity designated in a written notice from
the Collateral Agent. Checks returned unpaid because of uncollected or
insufficient funds shall be redeposited without advice. Checks returned a
second time shall be charged to the Lockbox Account and mailed with
appropriate advice to the Company or, at any time after receipt by the
Lockbox Bank of written notice (which notice may be delivered only upon the
occurrence and during the continuation of an Event of Default (as defined in
the Credit Agreement)) from the Collateral Agent, to the entity designated in
a written notice from the Collateral Agent.
Exhibit F-2
<PAGE>
(h) The Lockbox Bank shall maintain a microfilm record of each
check included in the Lockbox Account in accordance with the Lockbox Bank's
normal lockbox procedures. This film shall be available for use by the
Company and the Collateral Agent.
(i) The Company shall deposit such amounts into the Lockbox
Account as are required to be so deposited pursuant to Section 5 of the
Security Agreement.
SECTION 2. THE LOCKBOX ACCOUNT AND TRANSFERS THEREFROM. (a) Unless
and until the Lockbox Bank receives notice (which notice may be delivered
only upon the occurrence and during the continuation of an Event of Default
(as defined in the Credit Agreement)) from the Collateral Agent that the
provisions of Section 2(b) are to be implemented, which notice shall be
effective upon receipt by the Lockbox Bank (a "Stop Transfer Notice"), the
Lockbox Bank will debit the Lockbox Account in accordance with the Company's
instructions.
(b) After receipt by the Lockbox Bank of a Stop Transfer Notice,
the Lockbox Bank will cease debiting the Lockbox Account in accordance with
the Company's instructions (but may continue to debit the Lockbox Account in
accordance with Section 1(g)) and will disburse funds from the Lockbox
Account only in accordance with instructions from the Collateral Agent.
SECTION 3. MISCELLANEOUS. (a) The Company hereby agrees to
immediately notify its account debtors which have not already been notified
to send all their remittances to the Post Office Box.
(b) The Lockbox Bank's compensation for providing the services
contemplated herein shall be as mutually agreed between the Company and the
Lockbox Bank from time to time.
(c) The Lockbox Bank undertakes to perform only such duties as are
expressly set forth herein and are normally undertaken by the Lockbox Bank in
connection with its lockbox processing. Notwithstanding any other provision
of this Agreement, it is agreed by the parties to this Agreement that the
Lockbox Bank shall not be liable for any action taken by the Lockbox Bank or
any of its directors, officers, agents or employees in accordance with this
Agreement except for the Lockbox Bank's (or any director's, officer's,
agent's or employee's) gross negligence or willful misconduct. In no event
shall the Lockbox Bank be liable for losses or delays resulting from acts of
God, force majeure, computer malfunctions, interruptions of communication
facilities, labor difficulties or other causes beyond the Lockbox Bank's
reasonable control or for indirect, special or consequential damages.
(d) All notices or other written communications hereunder shall be
sent:
in the case of the Lockbox Bank, to:
-------------------------
-------------------------
-------------------------
-------------------------
Exhibit F-3
<PAGE>
in the case of the Company, to:
-------------------------
-------------------------
-------------------------
-------------------------
in the case of the Collateral Agent, to:
-------------------------
-------------------------
-------------------------
-------------------------
(e) The Lockbox Bank shall not assert, claim or endeavor to
exercise any right of set-off or banker's lien against any funds which may at
any time be deposited in the Lockbox Account, or any items or proceeds
thereof that come into the Lockbox Bank's possession in connection with this
Agreement, except to the extent otherwise provided in the last sentence of
Section 1(g) and except for fees payable pursuant to Section 3(b).
(f) During the term of the Security Agreement, this Agreement may
be terminated only by the Lockbox Bank, and then only upon written notice to
the other parties; PROVIDED that such termination shall not be effective
until the earlier of (i) such time as a successor bank shall have been
appointed and shall have accepted the responsibilities, duties and
obligations of the Lockbox Bank under this Agreement and (ii) 5:00 P.M. (New
York time) on the 60th day after receipt of such written notice. In the
event that the Lockbox Bank receives remittances following such termination,
it will forward such remittances to such successor bank (or, if no successor
bank has been appointed and shall have accepted the responsibilities, duties
and obligations of the Lockbox Bank under this Agreement, then as directed by
the Collateral Agent) and the Company shall compensate the Lockbox Bank for
such services at the price agreed to pursuant to Section 3(b) hereof.
(g) Neither this Agreement nor any provision hereof may be
changed, amended, modified or waived orally, but only by an instrument in
writing signed by the parties hereto.
(h) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(i) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
(j) This Agreement may be executed in any number of counterparts
which together shall constitute one and the same instrument.
Exhibit F-4
<PAGE>
(k) The Company agrees to pay, indemnify and hold the Lockbox Bank
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without
limitation, legal fees) with respect to the performance of this Agreement by
the Lockbox Bank or of its directors, officers, agents or employees, unless
arising from its or such natural persons' own gross negligence or willful
misconduct. The provisions of this paragraph shall survive termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
JATO COMMUNICATIONS CORP.
By:
------------------------------------
Name:
Title:
[BANK]
By:
------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
------------------------------------
Name:
Title:
Exhibit F-5
<PAGE>
EXHIBIT G
TO SECURITY AGREEMENT
[FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT]
Exhibit G-1
<PAGE>
EXHIBIT G TO
SECURITY AGREEMENT
(PARENT)
[FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT (PARENT)]
SECURITIES ACCOUNT CONTROL AGREEMENT (PARENT)
This SECURITIES ACCOUNT CONTROL AGREEMENT (PARENT) (the
"AGREEMENT"), dated as of July 14, 1999, by and among Jato Communications
Corp., a Delaware corporation (the "PARENT"), Lehman Brothers Inc. (the
"SECURITIES INTERMEDIARY"), and State Street Bank and Trust Company, as
Collateral Agent (the "COLLATERAL AGENT") for the benefit of the Secured
Parties (as defined in the Credit Agreement referred to below). Capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Credit Agreement, dated as of July 14, 1999, among Jato Operating Corp., the
Parent, the lenders party thereto, the Collateral Agent and Lucent
Technologies Inc., as Administrative Agent, as amended, supplemented and
modified from time to time (the "CREDIT AGREEMENT"), and references herein to
the "UCC" are references to the Uniform Commercial Code as in effect in the
State of New York.
WHEREAS, pursuant to the Security Agreement (Parent), the Parent
has granted a security interest in substantially all of its assets; and
WHEREAS, the Security Agreement (Parent) requires the Parent and
the Securities Intermediary to enter into this Agreement;
NOW THEREFORE, the parties hereto hereby agree, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. ESTABLISHMENT OF SECURITIES ACCOUNT. The Securities
Intermediary hereby confirms that the Securities Intermediary has established
account number 833-79146-11394 under the name "Jato Communications Corp.
pledge account for State Street Bank and Trust Company, as Collateral Agent"
(together with any successor accounts, the "SECURITIES ACCOUNT") for the
Parent.
2. TREATMENT OF THE SECURITIES ACCOUNT.
(a) The Securities Account is, and shall be treated as, a
"securities account" within the meaning of Section 8-501 of the UCC.
(b) The Securities Account is an account to which financial assets
are or may be credited.
(c) The Securities Intermediary shall treat the Collateral Agent
as (i) entitled to exercise the rights that comprise any financial asset
credited to the Securities Account, and (ii) the "entitlement holder" (within
the meaning of Section 8-102 of the UCC), for the benefit of the
<PAGE>
Secured Parties, with respect to the Securities Account on the books and
records of the Securities Intermediary.
(d) All property delivered to the Securities Intermediary shall be
promptly credited to the Securities Account.
(e) All securities or other property (other than cash) capable of
being issued or registered in the name of a Person or in bearer form
underlying any financial assets credited to the Securities Account shall be
registered in the name of "Jato Communications Corp. pledge account for State
Street Bank and Trust Company, as Collateral Agent" or indorsed to the
Securities Intermediary or in blank, and in no case shall any such financial
asset credited to the Securities Account be registered in the name of the
Parent, payable to the order of the Parent or specially indorsed to the
Parent, except as provided in Section 5 hereof.
3. "FINANCIAL ASSETS" ELECTION. Each item of property (whether
investment property, financial asset, security, instrument or cash or any
other property of any kind) credited to the Securities Account shall be
treated as a "financial asset" (within the meaning of Section 8-102(a)(9) of
the UCC) under Article 8 of the UCC.
4. CONTROL BY COLLATERAL AGENT. Upon receipt of a Notice of
Exclusive Control, the Securities Intermediary shall: (i) comply with all
notifications it receives directing it to transfer or redeem any financial
asset in the Securities Account (each an "ENTITLEMENT ORDER") originated by
the Collateral Agent without further consent by the Parent; and (ii) take
directions with respect to the Securities Account from the Collateral Agent.
5. PARENT'S RIGHTS IN THE SECURITIES ACCOUNT.
(a) Except as otherwise provided in this Section 5, the Securities
Intermediary shall comply with Entitlement Orders originated by the Parent
without further consent by the Collateral Agent.
(b) If the Securities Intermediary shall have received from the
Collateral Agent a notice of exclusive control substantially in the form of
Exhibit A attached (a "NOTICE OF EXCLUSIVE CONTROL"), the Securities
Intermediary shall cease:
(i) complying with Entitlement Orders or other directions
concerning the Securities Account originated by the Parent; and
(ii) distributing to the Parent earnings, income, dividends,
interest, or other distributions on investment property, instruments,
money, or other property credited to the Securities Account.
(c) The Collateral Agent hereby agrees, solely for the benefit of
the Parent and its successors and assigns, that the Collateral Agent will not
issue a Notice of Exclusive Control or any Entitlement Order unless an Event
of Default has occurred and is continuing on such date.
2
<PAGE>
(d) Notwithstanding any contrary provisions hereof, unless and
until the Securities Intermediary receives a Notice of Exclusive Control from
the Collateral Agent, (i) the Parent shall have the right to (1) trade and
exercise rights over the Securities Account and (2) originate Entitlement
Orders with respect to the Securities Account, including Entitlement Orders
that would require the Securities Intermediary to make a delivery to or for
the account of the Parent or any other Person and (ii) the Securities
Intermediary shall handle, invest, disburse and dispose of all financial
assets credited to the Securities Account in accordance with Entitlement
Orders or other directions originated by the Parent.
(e) Upon receipt of a Notice of Exclusive Control, the Securities
Intermediary shall cease complying with any Entitlement Orders originated by
the Parent that would require the Securities Intermediary to make a delivery
to or for the account of the Parent or any other Person, except where the
Collateral Agent has confirmed in writing that such delivery is acceptable to
the Collateral Agent.
6. SECURITIES INTERMEDIARY'S LIEN. The Securities Intermediary
agrees that, except for the payment of its fees, commissions and settlement
of open orders, it will not assert any lien, encumbrance, claim or right
against the Securities Account or any asset carried in the Securities Account.
7. SECURITIES INTERMEDIARY'S RESPONSIBILITY.
(a) The Securities Intermediary shall not be liable to the
Collateral Agent (for the benefit of the Secured Parties) for complying with
Entitlement Orders from the Parent that are received by the Securities
Intermediary before the Securities Intermediary receives and has a reasonable
opportunity to act on a Notice of Exclusive Control.
(b) The Securities Intermediary shall not be liable to the Parent
for complying with a Notice of Exclusive Control or with Entitlement Orders
originated by the Collateral Agent, even if the Parent notifies the
Securities Intermediary that the Collateral Agent is not legally entitled to
issue the Entitlement Order or Notice of Exclusive Control.
(c) This Agreement does not create any obligation of the
Securities Intermediary except for those expressly set forth in this
Agreement. In particular, the Securities Intermediary need not investigate
whether the Collateral Agent is entitled under the Collateral Agent's
agreements with the Parent to give an Entitlement Order or a Notice of
Exclusive Control. The Securities Intermediary may rely on notices and
communications that it believes were given by the appropriate party.
8. STATEMENTS, CONFIRMATIONS, AND NOTICES OF ADVERSE CLAIMS. The
Securities Intermediary shall provide to the Collateral Agent duplicate
copies of all statements, confirmations and other communications sent by the
Securities Intermediary to the Parent. Except for the claims and interests
of the Collateral Agent (for the benefit of the Secured Parties) and of the
Parent, the Securities Intermediary does not know of any claim to, or
interest in, the Securities Account or in any financial assets credited
thereto. If any person asserts any lien, encumbrance or adverse claim
(including any writ, garnishment, judgment, warrant of attachment, execution
or similar process) against the Securities Account or in any financial asset
3
<PAGE>
credited thereto, the Securities Intermediary shall notify the Collateral
Agent and the Parent thereof promptly after becoming aware thereof.
9. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE SECURITIES
INTERMEDIARY. The Securities Intermediary hereby represents, warrants and
covenants that:
(a) The Securities Account has been or shall be established as
described in Section 1 above, and the Securities Account shall be maintained
in the manner set forth herein until termination of this Agreement. The
Securities Intermediary shall not change the name or account numbers of the
Securities Account without the prior written consent of the Collateral Agent.
(b) No financial asset is registered in the name of the Parent, or
payable to the Parent's order, or specifically indorsed to the Parent, except
to the extent that such financial asset has been indorsed to the Securities
Intermediary or in blank. Except as otherwise provided in Section 5 hereof,
no financial asset shall be registered in the name of the Parent or payable
to the Parent's order or specially indorsed to the Parent, except to the
extent that such financial asset has been indorsed to the Securities
Intermediary or in blank.
(c) This Agreement is the valid and legally binding obligation of
the Securities Intermediary.
(d) Other than this Agreement, (i) the Securities Intermediary has
not entered into, and until the termination of this Agreement shall not enter
into, any agreement with any other Person relating to the Securities Account
and/or any financial assets credited thereto pursuant to which it has agreed
to comply with Entitlement Orders of such Person; and (ii) the Securities
Intermediary has not entered into any other agreement with the Parent or the
Collateral Agent purporting to limit or condition the obligation of the
Securities Intermediary to comply with Entitlement Orders as set forth in
Section 4 and Section 5 hereof; provided that, the Collateral Agent
acknowledges that the Security Account is managed on a discretionary basis by
the Securities Intermediary on behalf of the Parent.
10. INDEMNITY. The Parent hereby indemnifies and agrees to defend
and hold harmless the Securities Intermediary, its officers, directors,
employees, and agents against claims, liabilities, and expenses arising out
of this Agreement (including attorneys' fees and disbursements), except to
the extent that such claims, liabilities, or expenses are caused by or arise
from the Securities Intermediary's gross negligence or willful misconduct.
11. GOVERNING LAW. This Agreement and the Securities Account
shall be governed by the laws of the State of New York. Regardless of any
provisions in any other agreement, for purposes of the UCC, New York shall be
deemed to be the jurisdiction of the Securities Intermediary with respect to
the Securities Account and Entitlement Orders related thereto.
12. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE PARENT IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING BY THE COLLATERAL AGENT AGAINST IT UNDER,
4
<PAGE>
ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT OR ANY TRANSACTION
RELATED HERETO MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK, COUNTY
OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK. THE PARENT, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT,
EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF
ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. AS AN ALTERNATIVE
METHOD OF SERVICE, THE PARENT FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION
OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER
PROVIDED FOR IN SECTION 17 HEREOF. THE PARENT HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING
BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS OR ANY SIMILAR BASIS. THE PARENT SHALL NOT BE ENTITLED IN ANY
SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE
LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH DEFENSE IS
ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING IN THIS
SECTION 12 SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF
THE COLLATERAL AGENT OR ANY OTHER SECURED PARTY TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE PARENT IN ANY JURISDICTION OR TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY TRANSACTION RELATING HERETO.
13. ENTIRE AGREEMENT. This Agreement is the entire agreement, and
supersedes any prior agreements and contemporaneous oral agreements, of the
parties concerning its subject matter.
14. AMENDMENTS. No amendment or modification of this Agreement or
waiver of any right hereunder shall be binding on any party hereto unless it
is in writing and is signed by all of the parties hereto.
15. SEVERABILITY. To the extent a provision of this Agreement is
unenforceable, this Agreement shall be construed, to the maximum extent
permitted by applicable law, as if the unenforceable provision were omitted.
16. SUCCESSORS. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns.
17. NOTICES. All notices and other communications required or
permitted to be given hereunder shall be in writing, shall be addressed as
provided below and shall be considered as properly given (a) if delivered in
person, (b) if mailed by first class United States mail,
5
<PAGE>
postage prepaid, registered or certified with return receipt requested or (c)
if sent by prepaid facsimile transmission confirmed by telephone. Notice so
given shall be effective upon receipt by the addressee, except that
communication or notice so transmitted by facsimile transmission and
confirmed by telephone shall be deemed to have been validly and effectively
given on the day (if a Business Day and, if not, on the next following
Business Day) on which it is transmitted by facsimile and confirmed by
telephone before 4:00 p.m., recipient's time, and if transmitted by facsimile
and confirmed by telephone after that time, on the next following Business
Day; PROVIDED, HOWEVER, that if any notice is tendered to an addressee and
the delivery thereof is refused by such addressee, such notice shall be
effective upon such tender. Any party shall have the right to change its
address for notice hereunder to any other location within the continental
United States by giving of thirty (30) days' notice to the other parties in
the manner set forth hereinabove. Any communications between the parties
hereto or notices provided herein may be given to the following addresses:
(1) Collateral Agent: State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, MA 02111-174
Attention: Global Investor Services Group
Corporate Trust
Telecopy No.: (617) 664-1465
Copy to: Lucent Technologies Inc.
283 King George Road
Warren, NJ 07059
Attention: Assistant Treasurer - Project
Finance
Telecopy No.: (908) 559-1711
(2) Parent: Jato Communications Corp.
1099 18th Street
Suite 800
Denver, CO 80202
Attention: Vice President of Finance
Telecopy No.: (303) 226-8305
Copy to: Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, CO 80302
Attention: Rex R. O'Neal, Esq.
Telecopy No.: (303) 546-4099
6
<PAGE>
(3) Securities
Intermediary: Lehman Brothers Inc.
555 California Street
30th Floor
San Francisco, CA 94104
Attention: William E. Welsh III, Branch
Manager
Telecopy No.: (415) 263-4400
18. TERMINATION. The rights and powers granted herein to the
Collateral Agent have been granted in order to perfect its security interests
in the Securities Account for the benefit of the Secured Parties, are powers
coupled with an interest and shall be affected neither by the bankruptcy of
the Parent nor by the lapse of time. The obligations of the Securities
Intermediary hereunder shall continue in effect until the Partial Termination
Date and the Collateral Agent has notified the Securities Intermediary of
such event in writing.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute but one and the same instrument.
20. HEADINGS. Section headings have been inserted in this
Agreement as a matter of convenience for reference only, and it is agreed
that such section headings are not a part of this Agreement and shall not be
used in the interpretation of any provision of this Agreement.
(Signatures Follow on Next Page)
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities Account
Control Agreement to be duly executed by their duly authorized
representatives as of the day and year first above written.
JATO COMMUNICATIONS CORP.
By
--------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By:
--------------------------------
Name:
Title:
LEHMAN BROTHERS INC.,
as Securities Intermediary
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[Letterhead of the Collateral Agent]
[Date]
LEHMAN BROTHERS INC.
555 California Street
30th Floor
San Francisco, CA 94104
Attention: William E. Welsh, Branch Manager
Notice of Exclusive Control
Ladies and Gentlemen:
As referenced in the Securities Account Control Agreement (Parent),
dated as of July 14, 1999, among Jato Communications Corp., Lehman Brothers
Inc. and State Street Bank and Trust Company, as Collateral Agent (a copy of
which is attached), we hereby give you notice of our exclusive control over
securities account number 833-79146-11394 (the "SECURITIES ACCOUNT") and all
financial assets, cash and instruments credited thereto. You are hereby
instructed not to accept any direction, instruction or entitlement order with
respect to the Securities Account or the financial assets, cash and
instruments credited thereto from any person other than the undersigned.
You are instructed to deliver a copy of this notice by facsimile
transmission to Jato Communications Corp.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY, as Collateral
Agent
By:
--------------------------------
Title
<PAGE>
EXECUTION COPY
CAPACITY AGREEMENT
BETWEEN
GLOBAL CROSSING BANDWIDTH, INC.
AND
JATO COMMUNICATIONS CORPORATION
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
- -------
<S> <C>
Definitions
1. Services; Circuit Term; Circuit Availability Date
2. Term of the Agreement
3. Billing and Payment; Minimum Commitments
4. Billing Disputes
5. Termination Rights
6. Warranties and Limitation Of Liability
7. Indemnification
8. Representation
9. Force Majeure
10. Waivers
11. Assignment
12. Confidentiality
13. Integration
14. Governing Law
15. Notices
16. Compliance with Laws
17. Survival of Provisions
18. Unenforceable Provisions
19. Cumulative Rights and Remedies
20. Amendments
21. Non-Solicitation
22. Authority
23. Tariffs
</TABLE>
EXHIBITS
Exhibit A Private Line Rates and Charges
Exhibit B National Fiber Network POP Location (By Site)
Exhibit C CarrierConnect-SM- Dedicated Internet Access Services
Exhibit D CarrierConnect-SM- IP Plus Options and Associated Charges
Schedule I Ramp Revenue Schedule
Attachment A Service Order #1
2
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
CAPACITY AGREEMENT
This Capacity Agreement ("AGREEMENT") is entered into between the provider of
service, Global Crossing Bandwidth, Inc. on behalf of itself and its Affiliates
(as such term is defined herein) that may provide a portion of the services
hereunder ("GLOBAL CROSSING"), a California corporation located at 90 Castilian
Drive, Goleta, CA 93117 and Jato Communications Corporation ("Jato" or
"PURCHASER"), a Delaware corporation with its principal place of business
located at 1099 18th Street, Suite 2200 Denver, Colorado 80202 (hereinafter,
Global Crossing and Jato may be referred to in the aggregate as "PARTIES", and
each singularly as a "PARTY".) Upon full execution, this Agreement supercedes
any and all existing Agreements/Addenda between the parties.
PURPOSE
Jato is an Internet Service Provider (ISP) that desires to purchase dedicated
circuit capacity from Global Crossing for use in providing Internet access and
related services to its customers. For valuable consideration, receipt of which
is hereby acknowledged, the Parties hereto agree as follows.
DEFINITIONS (not otherwise defined in the body of this Agreement or an
attachment).
A. "AFFILIATE" means any entity directly or indirectly controlling,
controlled by or under common control with a Party.
B. "BILLING CYCLE" is the Global Crossing billing cycle to which Jato's
account hereunder is assigned by Global Crossing (a full billing cycle
approximates 30 days).
C. "BUSINESS DAY" is Monday through Friday, 8:00 am to 5:00 PM EST,
excluding nationally recognized holidays. Unless otherwise stated,
"DAYS" refers to calendar days.
D. "DELINQUENT" (whether capitalized or not) means any invoiced amounts
not properly disputed under Section 4 of this Agreement and remaining
unpaid the due date of the invoice.
1. SERVICES; CIRCUIT TERM; CIRCUIT AVAILABILITY DATE:
1.1 Global Crossing shall, in accordance with the terms of this Agreement,
provide Jato with DS-1, DS-3, OC-3 and OC-12 circuit capacity for
point-to-point private line services and for dedicated Internet access
services as the same may be ordered by Jato and the order accepted by
Global Crossing hereunder from time to time. It is understood the
parties may negotiate for future services that are not currently
defined in this Agreement. All such circuit capacity is collectively
referred to as the "SERVICES".
1.2 Unless one Party provides the other with at least 90 days prior
written notice of its intent not to renew a circuit after the
circuit's minimum commitment period expires, then, unless the Parties
agree otherwise in writing, a circuit shall automatically renew on a
month-to-month basis at Global Crossing's then-current rates and
charges for that circuit type.
3
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
1.3 Upon receipt of a complete and accurate service order for a circuit,
Global Crossing shall notify Jato of its target date for the delivery
of each circuit (the "ESTIMATED AVAILABILITY DATE"). Any Estimated
Availability Date given by Global Crossing to Jato shall be subject to
Global Crossing's then-current standard and expedited interval
guidelines. Global Crossing shall use reasonable efforts to install
each circuit on or before the Estimated Availability Date, but the
inability of Global Crossing to deliver a circuit by such date, or
within the interval guidelines, shall not be deemed a breach of this
Agreement by Global Crossing. If Global Crossing fails to make any
circuit available within 90 days after Global Crossing's confirmed
delivery date of the service ordered, Jato's sole remedy shall be to
cancel the service order which pertains to such circuit upon ten days
prior written notice to Global Crossing. Notwithstanding the
foregoing, Jato shall also have a remedy wherein any circuit confirmed
by Global Crossing and subsequently not supplied due to Global
Crossing' s inability to deliver will count toward a reduction in the
Quarterly Minimum Charge (defined at Section 3.7). The reduction in
the Quarterly Minimum Charge shall be calculated by the specific
monthly value of the specific circuits that Global Crossing is unable
to provide under the above terms and conditions, multiplied by a
maximum of six months. Such reduction shall be accounted for in month
72 of the term hereof.
1.4 At each end of the city pairs on which Jato orders circuits, as well
as within the Global Crossing IP POP to which Jato orders circuits,
Global Crossing shall provide appropriate equipment in its SONET/IP
POP locations necessary to connect the circuits to Jato's
Interconnection Facilities. If Jato desires to install its own
equipment in one or more SONET/IP POP, and Global Crossing , in its
sole discretion, agrees to such installation, the Parties shall
execute a collocation agreement acceptable to both Parties. Jato
agrees that its Interconnection Facilities shall connect to the
circuits provided by Global Crossing hereunder at the network
interface points located in the Global Crossing SONET/IP POPs. As used
herein, the term "INTERCONNECTION FACILITIES" shall mean transmission
capacity provided by Jato or its third party supplier to extend the
circuits provided by Global Crossing from a SONET/IP POP to any other
location (e.g., a local access telephone service provided by a local
telephone company).
1.5 For DS-3 and lesser capacity circuits, Global Crossing shall use
reasonable efforts to order Interconnection Facilities on behalf of
Jato from Jato's designated supplier at a cost agreed to by Jato in
writing, provided that Jato furnishes Global Crossing with an
acceptable letter of agency. Jato shall be billed directly by the
supplier of such Interconnection Facilities, and shall defend and
indemnify Global Crossing from any loss or liability incurred by
Global Crossing as a result of Global Crossing's ordering
Interconnection Facilities from any third party on Jato's behalf. Jato
may, at its election, but subject to Global Crossing's prior written
approval, order its own Interconnection Facilities. If any party other
than Global Crossing provides Interconnection Facilities, then
unavailability, incompatibility, delay in installation, or other
impairment of Interconnection Facilities shall not excuse Jato's
obligation to pay Global Crossing all rates or charges applicable to
the circuits, whether or not such circuits are useable by Jato unless
such unavailability, incompatibility, delay in installation, or other
impairment of Interconnection Facilities is caused by Global Crossing.
When such circuit becomes available, billing will recommence
concurrent with activation. Global Crossing will not order
Interconnection Facilities on behalf of Jato for OC-N circuits.
4
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
2. TERM OF THE AGREEMENT:
This Agreement is binding on the Parties upon the date of execution by
Global Crossing ("EFFECTIVE DATE") and, subject to the early termination
provisions of this Agreement, shall continue in effect for a period of
seventy-two (72) months ("INITIAL TERM"). If a circuit remains installed
beyond the Initial Term of this Agreement, then this Agreement shall remain
in effect as long as a circuit is installed hereunder.
3. BILLING AND PAYMENT; MINIMUM COMMITMENTS:
3.1 Subject to all the terms and conditions of this Agreement, Jato shall
pay Global Crossing for the Services at the rates and charges set out
in the Exhibits or as the Parties may otherwise agree in writing. Jato
will be responsible for applicable taxes and governmental assessments
with respect to its use of the Services. If Jato is required to
provide security hereunder, then Global Crossing is not obligated to
accept orders, or provide or continue to provide any Services or
circuits, until the required security is received by Global Crossing.
If Jato is an existing customer of Global Crossing, the rates and
charges set forth herein shall be effective with Jato's first full
Billing Cycle following the later of the Effective Date of this
Agreement or the date Global Crossing receives any security required
hereunder. Billing for a circuit shall commence upon the earlier to
occur of (i) 30 days following the date Global Crossing notifies Jato,
in writing or via electronic transmission, that the ordered circuit
capacity is available from Global Crossing (regardless of whether or
not Jato's Interconnection Facilities are installed and operational),
or (ii) the date the ordered circuit capacity is first utilized by
Jato (the "SERVICE DATE").
3.2 Jato shall provide Global Crossing with a letter of credit in the
amount of $[* * *] as security with respect to its performance under
this Agreement, which letter of credit shall be provided to the
Controller of Global Crossing within thirty (30) business days after
the execution of this Agreement. Assuming timely performance of its
obligations under this Agreement, the letter of credit shall no longer
be required of Jato [* * *] after the later of: (a) the execution of
this Agreement, and (b) the completion of an initial public offering
by Jato.
3.3 Jato's initial credit limit hereunder shall be $[* * *]. As long as
Jato remains in good standing in meeting the payment schedule outlined
in Schedule I, Jato's credit limit will increase to [* * *]. In the
event that Jato's consumption accelerates beyond this schedule, Jato
and Global Crossing agree to negotiate in good faith any additional
credit requirements. In addition, if Jato is delinquent in payment of
an invoice and Global Crossing does not have security from Jato in an
amount equal to Jato's highest invoice over the prior six month period
(or such lesser period if this Agreement has not been in effect for
six months), Global Crossing may require security, to be mutually
agreed upon by the parties, to be negotiated in good faith, from Jato
in such amount. Any such security shall be provided by Jato to Global
Crossing within ten Business Days from its receipt of Global
Crossing's written request for security.
5
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
3.4 Monthly recurring charges ("MRC") shall be invoiced by Global Crossing
on a monthly basis in advance and non-recurring charges shall be
invoiced in arrears. If the Service Date for any circuit falls on
other than the first day of any Billing Cycle, the initial charge to
Jato shall consist of: (i) the pro-rata portion of the applicable
monthly charge covering the period from the Service Date to the first
day of the subsequent Billing Cycle, and (ii) the monthly charge for
the following Billing Cycle. Payment terms are net 30 days from the
invoice date. Any invoice not paid by its due date shall bear late
payment fees at the rate of 1-1/2% per month (or such lower amount as
maybe required by law) until paid.
3.5 The pricing and terms in Exhibit A applies to the Private Line
Services provided between the "on-net" nodes set out in the Global
Crossing SONET POP List attached hereto as Exhibit B. The pricing
and terms in Exhibits C and D apply to the Dedicated Internet
Access Services and other services stated on such Exhibits, as
provided between the [* * *] set out in the Global Crossing IP POP
List set out in Exhibit C. If Global Crossing's cost in providing
the Services is increased due to circumstances beyond its
reasonable control, or Global Crossing elects to pass through any
governmental or regulatory assessments related to its provision of
the Services, then Global Crossing may revise the rates and charges
in this Agreement and any attached Exhibits upon 30 days written
notice to Jato. Jato may cancel, without further liability (other
than to pay for the circuit through the date of cancellation), any
circuits subject to a rate/charge increase (other than increases
resulting from governmental or regulatory assessments) upon written
notice to Global Crossing given no later than [* * *] after Jato's
receipt of the increase notice. Global Crossing agrees to a review
of pricing every [* * *] for the Services. If the pricing in this
Agreement is found to be [* * *] than Global Crossing's then
current standard pricing for Services of the same type, size,
network configuration and technical characteristics, [* * *].
3.6 Subject to all of the terms and conditions of this Agreement, Jato
agrees to pay a quarterly minimum charge (the "QUARTERLY MINIMUM
CHARGE") as provided in the Ramp Revenue Schedule identified as
Schedule I. While Schedule I includes monthly amounts, the Parties
have agreed on a quarterly minimum structure.
The Quarterly Minimum Charge is intended to be met through the use of
any services offered by Global Crossing. Global Crossing may not
currently offer some services that are of interest to Jato; [* * *].
In addition, provided that Global Crossing procures such services for
Jato, [* * *] provided to Jato from Global Crossing or a Global
Crossing Affiliate [* * *]. However, Global Crossing may require, as
mutually agreed upon by the parties, that a minimum of the Quarterly
Minimum Charge be met [* * *] provided by Global Crossing, rather than
its Affiliate, which minimum charge would include, among other things,
Global Crossing [* * *].
If Jato's net charges (after any available discounts hereunder) for
the Services during a quarterly period are less than the Quarterly
Minimum Charge, Jato shall pay the shortfall. Governmental assessments
and surcharges, non-recurring charges, operator assistance charges and
local loop and third party and regulatory pass-through charges are not
included when calculating Quarterly Minimum Charge. If this Agreement
is terminated prior to the time the Quarterly Minimum Charge becomes
effective (other than termination by Jato for an uncured breach by
Global Crossing), Jato shall be liable for the amount described in
Section 5.5 hereof.
3.7 If a circuit is canceled prior to expiration of its minimum term
commitment, except if canceled by Jato under Section 3.5 hereof, or
this Agreement is terminated for Global Crossing's uncured breach,
Jato shall be liable for, and shall pay to Global Crossing upon
demand, an early termination fee in an amount equal to the applicable
monthly per circuit minimum charge times the number of months
remaining on the unexpired term commitment (whether the initial or a
renewal term) for the circuit.
6
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
3.8 Jato agrees that any minimum charge shortfall and any early
termination fees for which it may be liable under this Agreement are
based on agreed upon minimum commitments on its part and corresponding
rate concessions on Global Crossing's part, and are not penalties or
consequential or other damages under Section 6. 4 hereof.
4. BILLING DISPUTES: Jato shall have the affirmative obligation of providing
written notice of any dispute with an invoice within 90 days after receipt
of the invoice by Jato (which notice shall include sufficient detail for
Global Crossing to investigate the dispute). Jato may withhold payment only
on amounts so disputed within 30 Business Days after Jato's receipt of the
invoice. Jato may not withhold payment of amounts disputed after such 30
Business Day period. If Jato does not report a dispute with respect to an
invoice within the 90 day period, Jato is deemed to have waived its dispute
rights for that invoice and to have agreed to pay the same. Provided Jato
has provided sufficient detail for investigation of the dispute, Global
Crossing will use reasonable efforts to resolve and communicate its
resolution of the dispute within 30 Business Days of its receipt of the
dispute notice. If the dispute is resolved in Global Crossing's favor any
amounts to be paid by Jato shall be subject to the late payment charges
under Section 3.4 hereof retroactive to the due date of the disputed
invoice. Notwithstanding anything herein to the contrary, Jato shall not
withhold any disputed amounts while its Global Crossing account is
delinquent.
5. TERMINATION RIGHTS:
5.1 Either Party may terminate this Agreement upon the other Party's
insolvency, dissolution or cessation of business operations.
5.2 Global Crossing may, upon written notice, immediately terminate this
Agreement for (i) Jato's failure to pay any delinquent invoice within
ten days after receipt of written notice from Global Crossing as to
the delinquency, or (ii) to pay any security or additional security
within the time-frame required under Section 3.3.
5.3 In the event of a breach of any material term or condition of this
Agreement by a Party (other than a failure to pay or provide security
which is covered under Section 5.2 hereof), the other Party may
terminate this Agreement upon 30 days written notice, unless the
breaching Party cures the breach during the 30 day period. A breach
that cannot be reasonably cured within a 30 day period may be
addressed by a written waiver of this paragraph signed by the Parties.
5.4 If this Agreement is terminated prior to expiration of a circuit's
term commitment, except if terminated by Jato under Section 5.3
hereof, then Jato shall pay to Global Crossing upon demand an early
termination fee in an amount equal to the aggregate sum of each
existing circuit's monthly minimum commitment, times the number of
months remaining on each circuit's minimum commitment period, based on
the payment schedule outlined in Schedule I.
5.5 If this Agreement is terminated prior to expiration of the initial
term,, except if terminated by Jato under Section 5.3 hereof, then
Jato shall pay to Global Crossing an amount equal to the sum of the
remaining Quarterly Minimum Charges for the remaining portion of the
unexpired term of this Agreement, based on the payment schedule
outlined in Schedule I. Nothing in sections 3.7, 5.4 or 5.5 is
intended to require that Jato make a duplicate payment to Global
Crossing for the same item on termination of this Agreement, during
the Initial Term or any renewal Term, or to pay an amount higher than
the highest amount calculated under any of these three individual
Sections, based on the then-existing remaining circuit commitments or
remaining Quarterly Minimum Charges.
(Remainder of page blank.)
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<PAGE>
6. WARRANTIES AND LIMITATION OF LIABILITY:
6.1 The Services shall be provided by Global Crossing in accordance with
the Service Level Parameters in this Agreement, as well as with the
applicable technical standards established for dedicated circuit
capacity by the telecommunications industry for a digital fiber optic
network. Further, Global Crossing warrants that Jato's use of the
Services will not infringe any third party's intellectual property
rights. The foregoing intellectual property warranty shall not apply,
and Global Crossing shall have no liability hereunder, to the extent
that any infringement or claim thereof is based upon use of the
Services in combination with equipment, software or services not
provided by Global Crossing where the use of the Services alone would
not be infringing. EXCEPT AS PROVIDED HEREIN, GLOBAL CROSSING MAKES NO
OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO TRANSMISSION,
EQUIPMENT OR SERVICE PROVIDED HEREUNDER, AND EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR
FUNCTION.
6.2 The following Service Level Parameters (SLP) apply only to DS-1,
DS-3 and OC-3 circuits with term commitments of at least one year
used for the Dedicated Internet Access Services. The SLP cover (i)
the [* * *] in the Global Crossing [* * *] which connects directly
to [* * *] circuit, (ii) the Global Crossing [* * *] the Global
Crossing [* * *], and (iii) [* * *] within Global Crossing's
control which provide [* * *] and other functions which enable Jato
to logically interact with the network. The SLP specifically
exclude (a) the [* * *] between [* * *] and the Global Crossing
[* * *], (b) [* * *] equipment either owned by Jato or provided
through Global Crossing, (c) [* * *], and (d) other Internet
service provider networks.
A. Network Availability of [* * *] measured on a monthly basis for
Global Crossing's IP access ports and backbone network in the
contiguous United States.
B. Average monthly round-trip transmission latency of no more than
85 milliseconds within Global Crossing's backbone in the
contiguous United States.
C. Global Crossing's network is monitored on a 24 hours, 7 days per
week basis. Global Crossing shall use commercially reasonable
efforts to provide Jato with two day's prior notice of all
planned outages or scheduled maintenance which may cause
significant Service degradation, and shall seek to perform
maintenance during periods of low usage generally.
6.3 Except as provided in Section 7 below the entire liability of Global
Crossing for all claims of whatever nature arising out of its failure
to provide the Services, and not caused by (i) Jato or third parties,
or (ii) a scheduled or emergency interruption (hereafter an "Outage"),
shall be a credit for service interruptions greater than 120
continuous minutes (hereafter an "OUTAGE"). The amount of the credit
is computed in accordance with the following formula (the "OUTAGE
CREDIT"):
[* * *]
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<PAGE>
A. The Outage Credit shall apply to the charges for [* * *]
circuit affected by an Outage; provided, however, that if
any portion of the affected circuit remains useable by Jato,
the Outage Credit shall not apply to that pro-rata portion
of the mileage. The duration of each Outage shall be
calculated [* * *] thereof. An Outage shall be deemed to
have commenced upon verifiable notification thereof by Jato
to Global Crossing, or, when indicated by network control
information actually known to Global Crossing network
personnel, whichever is earlier. Each Outage shall be deemed
to terminate upon restoration of the affected circuit as
evidenced by appropriate network tests by Global Crossing.
Global Crossing shall give notice to Jato of any scheduled
interruption as early as is practicable, and a scheduled
outage shall under no circumstance be viewed as an Outage
hereunder.
B. Outage Credits shall not be granted if the malfunction of
any end-to-end circuit is due to an Outage or other defect
occurring in Jato's Interconnection Facilities.
C. All Outage Credits shall be credited on the next monthly
invoice for the affected circuit after receipt of Jato's
written request for credit. The total of all Outage Credits
applicable to or accruing in any given month shall not
exceed the amount payable by Jato to Global Crossing for
that same month for the affected circuit.
D. The Outage Credit described in this Section shall be the
sole and exclusive remedy of Jato in the event of any Outage
or other failure in the Services, except [* * *]. In the
event of such an Outage, Jato shall be afforded service
credits reflecting (and not less than) what Global Crossing
provides to other similarly affected carriers (based on the
average of the three most recent comparable carrier Outages.
.
6.4 In no event shall either Party be liable to the other Party for
incidental and consequential damages, loss of goodwill,
anticipated profit, or other claims for indirect damages in any
manner related to this Agreement or the Services.
7. INDEMNIFICATION: Except for claims arising out of the gross negligence or
willful misconduct of the other Party, each Party shall defend and
indemnify the other Party and its directors, officers, employees,
representatives and agents from any and all third party claims, taxes,
penalties, interest, expenses, damages, third party lawsuits or other
liabilities (including without limitation, reasonable attorney fees and
court costs) brought against the indemnified Party, relating to or arising
out of (i) acts or omissions in the operation of its business, and (ii) its
material breach of this Agreement; Notwithstanding the foregoing, absent
its gross negligence or willful misconduct, Global Crossing shall not be
obligated to indemnify Jato for any third party claims with respect to
services provided by Jato which may incorporate any of the Services;
provided that the indemnified party (i) provides the indemnifying party
prompt notice of the relevant claim, (ii) reasonably cooperates with the
defense of such claim at the indemnifying party's expense and (iii) gives
the indemnifying party the right to control the defense and settlement of
any such claim.
8. REPRESENTATION: The Parties acknowledge and agree that the relationship
between them is solely that of independent contractors. Neither Party, nor
their respective employees, agents or representatives, has any right, power
or authority to act or create any obligation, express or implied, on behalf
of the other Party.
9. FORCE MAJEURE: Other than with respect to failure to make payments due
hereunder, neither Party shall be liable under this Agreement for delays,
failures to perform, damages, losses or destruction, or malfunction of any
equipment, or any consequence thereof, beyond a party's reasonable control
or caused or occasioned by, or due to fire, earthquake, flood, water, the
elements, labor disputes or shortages, utility curtailments, power
failures, explosions, civil disturbances, governmental actions, shortages
of equipment
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<PAGE>
or supplies, unavailability of transportation, acts or omissions of third
parties, or any other cause beyond its reasonable control.
10. WAIVERS: Failure of either Party to enforce or insist upon compliance with
the provisions of this Agreement shall not be construed as a general waiver
or relinquishment of any provision or right under this Agreement.
11. ASSIGNMENT: Neither Party may assign or transfer its rights or obligations
under this Agreement without the other Party's written consent, which
consent may not be unreasonably withheld, except that either Party may
assign this Agreement to its Affiliates or successor in interest without
the other Party's consent. Any assignment or transfer without the required
consent is void.
12. CONFIDENTIALITY: Each Party agrees that all information furnished to it by
the other Party, or to which it has access under this Agreement, shall be
deemed the confidential and proprietary information or trade secrets
(collectively referred to as "PROPRIETARY INFORMATION") of the Disclosing
Party and shall remain the sole and exclusive property of the Disclosing
Party (the Party furnishing the Proprietary Information referred to as the
"DISCLOSING PARTY" and the other Party referred to as the "RECEIVING
PARTY"). Each Party shall treat the Proprietary Information and the
contents of this Agreement in a confidential manner and, except to the
extent necessary in connection with the performance of its obligations
under this Agreement, neither Party may directly or indirectly use or
disclose the Proprietary Information of the Disclosing Party to anyone
other than its employees on a need to know basis and who agree to be bound
by the terms of this Section, without the written consent of the Disclosing
Party. Neither Party will have any obligation with respect to Proprietary
Information that: (i) is or becomes generally known to the public by any
means other than a breach of the obligations of a receiving Party; (ii) was
previously known to the receiving Party or rightly received by a receiving
Party from a third party; or (iii) is independently developed by or for the
receiving Party without reference to the disclosing Party's Proprietary
Information.
13. INTEGRATION: This Agreement and all Exhibits A-D, Schedule 1 and Attachment
A, and other attachments are incorporated herein, and represent the entire
agreement between the Parties with respect to the subject matter hereof,
and supersede and merge all prior agreements, promises, understandings,
statements, representations, warranties, indemnities and inducements to the
making of this Agreement relied upon by either Party, whether written or
oral.
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<PAGE>
14. GOVERNING LAW:
Global Crossing currently maintains regional service and operations
centers to support customer accounts in [* * *]. This Agreement will be
construed and enforced in accordance with the law of the state where
Jato's account is supported, as designated by Global Crossing in this
Agreement or as designated in Exhibits or amendments to this Agreement,
without regard to that state's choice of law principles. The Parties
agree that any action related to this Agreement shall be brought and
maintained only: (i) in the Superior court of the State of [* * *] for
the County of [* * *], if the designated customer support center is
located in [* * *]; (ii) in a Federal or State court of competent
jurisdiction located in [* * *] County, [* * *], if the designated
customer support center is located in [* * *]; or (iii) in the Federal
District Court for the Eastern District of [* * *] or a State court of
competent jurisdiction located in [* * *] County, [* * *], if the
designated customer support center is located in [* * *]. The Parties
each consent to the jurisdiction and venue of such courts and waive any
right to object to such jurisdiction and venue.
15. NOTICES: All notices, including but not limited to, demands, requests and
other communications required or permitted hereunder (not including
Invoices) shall be in writing and shall be deemed given: (i) when delivered
in person, (ii) 24 hours after deposit with an overnight delivery service
for next day delivery, (ii) the same day when sent by facsimile
transmission during normal business hours, receipt confirmed by sender's
equipment, or (iii) 72 hours after deposit in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
and addressed to the recipient Party at the address set forth below:
If to Global Crossing: Global Crossing Bandwidth, Inc.
180 South Clinton Avenue
Rochester, New York 14646
Attn: Senior Vice President North American
Carrier Services
Facsimile #: 716-232-9168
with a copy to: Global Crossing Bandwidth, Inc.
180 South Clinton Avenue
Rochester, New York 14646
Attn: Sharon Posadni, Manager National
Contract Admin.
Facsimile #: 716-454-5825
If to Jato Jato Communications
1099 18th Street, Suite 2200
Denver, Colorado 80202
Attn: Jerry Dinsmore, President & CEO
Fax #: 303-226-8380
16. COMPLIANCE WITH LAWS: During the term of this Agreement, the Parties shall
comply with all local, state and federal laws and regulations applicable to
this Agreement and to their respective businesses. Each Party will obtain
and maintain at its own expense any licenses, registrations, permits and
approvals needed for it to perform its duties under this Agreement.
17. SURVIVAL OF PROVISIONS: Any obligations of the Parties relating to monies
owed, as well as those provisions relating to confidentiality, limitations
on liability and indemnification, shall survive termination of this
Agreement.
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<PAGE>
18. UNENFORCEABLE PROVISIONS: The illegality or unenforceability of any
provision of this Agreement does not affect the legality or enforceability
of any other provision or portion. If any provision or portion of this
Agreement is deemed illegal or unenforceable for any reason, there shall be
deemed to be made such minimum change in such provision or portion as is
necessary to make it valid and enforceable as so modified.
19. CUMULATIVE RIGHTS AND REMEDIES: Except as may otherwise be provided herein,
the assertion by a Party of any right or the obtaining of any remedy
hereunder shall not preclude such Party from asserting or obtaining any
other right or remedy, at law or in equity, hereunder.
20. AMENDMENTS: Except as may otherwise be provided herein, any amendments or
modifications to this Agreement must be in writing and signed by a Global
Crossing Vice President (or higher level officer) and an authorized officer
of Jato.
21. AUTHORITY: Each individual executing below on behalf of a Party hereby
represents and warrants to the other Party that such individual is duly
authorized to so execute, and to deliver, this Agreement. By its signature
below, each Party acknowledges and agrees that sufficient allowance has
been made for review of this Agreement by respective counsel and that each
Party has been advised by its legal counsel as to its legal rights, duties
and obligations under this Agreement.
22. TARIFFS: The Services are provided [* * *]. If the Services are or become
[* * *] Jato's rights or obligations hereunder.
GLOBAL CROSSING BANDWIDTH, INC. JATO COMMUNICATIONS
By: /s/ Brian V. Fitzpatrick By: /s/ William D. Myers
----------------------------------- --------------------------------
Brian V. Fitzpatrick, President
North American Carrier Services William D. Myers
Chief Financial Officer
Date: 2/23/00 Date:
---------------------------------- ------------------------------
By: /s/ Charles F. Barker
-----------------------------------
Charles F. Barker, C.F.O. Carrier Svcs.
Date: 2/23/00
----------------------------------
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<PAGE>
Exhibit A
Page 1 of 1
PRIVATE LINE SERVICE
RATES AND CHARGES
Pricing for the Private Line Services is based upon the length of the circuit
term commitment according to the following rate schedule.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
MINIMUM
MONTHLY CHARGE
CIRCUIT CAPACITY [* * *] YEAR [* * *] YEAR TERM [* * *] YEAR TERM PER CIRCUIT
TERM
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *]
-------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] [* * *] [* * *]
-------------------------------------------------------------------------------------------------
Notes: Pricing is per [* * *] for specific city pairs.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INSTALLATION INSTALLATION INSTALLATION
NON-RECURRING CHARGES [* * *] YEAR [* * *] YEARS [* * *] YEARS* REARRANGEMENT** EXPEDITE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Installation charges are [* * *].
**Rearrangement is defined to be any move, change or rearrangement of a circuit.
Rearrangement charges are [* * *].
Upon signature of a SONET Service Request (SSR) by Jato, the Parties agree that
the SSR constitutes a firm order and should Jato cancel an ordered circuit(s)
prior to the Service Date, Jato will pay the applicable cancellation charge
below.
<TABLE>
<CAPTION>
- ---------------------------------------
CIRCUIT CANCELLATION CHARGES
- ---------------------------------------
<S> <C>
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
</TABLE>
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<PAGE>
Exhibit B
Page 1 of 3
NATIONAL FIBER NETWORK POP LOCATION (by Site)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EXPECTED
SITE SERVICE DATE STATE LATA POP LOCATION ZIP CODE NPA-NXX
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Akron [* * *] OH 325 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Albany [* * *] NY 134 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Albuquerque [* * *] NM 664 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Altoona [* * *] PA 230 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Anaheim [* * *] CA 730 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Anaheim [* * *] CA 730 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Atlanta [* * *] GA 438 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Austin [* * *] TX 558 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Baltimore [* * *] MD 238 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Baton Rouge [* * *] LA 492 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Battle Creek [* * *] MI 348 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Billings [* * *] MT 650 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Birmingham [* * *] AL 476
- -------------------------------------------------------------------------------------------------------------------------
Boise [* * *] ID 652
- -------------------------------------------------------------------------------------------------------------------------
Boston [* * *] MA 128 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Bowling Green [* * *] KY 464 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Bridgeport [* * *] CT 920 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Buffalo [* * *] NY 140 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Casper [* * *] WY 654 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Charlotte [* * *] NC 422 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Chattanooga [* * *] TN 472 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Chicago [* * *] IL 358 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Chico [* * *] CA 724 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Cincinnati [* * *] OH 922 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Cleveland [* * *] OH 320 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Colorado Springs [* * *] CO 658 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Columbus [* * *] OH 324 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Dallas [* * *] TX 552 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Dayton [* * *] OH 328 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Daytona Beach [* * *] FL 456 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Denver [* * *] CO 656 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Detroit [* * *] MI 340 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Des Moines [* * *] IA 632 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Eau Claire [* * *] WI 352 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
El Paso [* * *] TX 540 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Erie [* * *] PA 924 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Eugene [* * *] OR 670 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Fort Worth [* * *] TX 552 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Fredricksburg [* * *] VA 246 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Ft. Lauderdale [* * *] FL 460 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Ft. Myers [* * *] FL 939 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Green Bay [* * *] WI 350 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Greensboro [* * *] NC 424 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Greenville [* * *] SC 430 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Harrisburg [* * *] PA 226 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Helena [* * *] MT 648 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Houston [* * *] TX 560 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Houston [* * *] TX 560 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Indianapolis [* * *] IN 336 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Indianapolis [* * *] IN 336 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Jackson [* * *] MS 482 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
14
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200.83 and 240.24b-2
<PAGE>
Exhibit B
Page 2 of 3
NATIONAL FIBER NETWORK POP LOCATION (by Site)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EXPECTED
SITE SERVICE DATE STATE LATA POP LOCATION ZIP CODE NPA-NXX
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Jacksonville [* * *] FL 452 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Kansas City [* * *] MO 524 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Las Vegas [* * *] NV 721
- -------------------------------------------------------------------------------------------------------------------------
Lincoln [* * *] NE 958 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Los Angeles [* * *] CA 730 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Louisville [* * *] KY 462 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Macon [* * *] GA 446 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Medford [* * *] OR 670 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Melbourne [* * *] FL 458 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Miami [* * *] FL 460 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Milwaukee [* * *] WI 356 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Minneapolis [* * *] MN 628 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Mobile [* * *] AL 480 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Nashville [* * *] TN 470 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
New London [* * *] CT 920 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
New Orleans [* * *] LA 490 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
New York City [* * *] NY 132 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Newark [* * *] NJ 224 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Oakland [* * *] CA 722 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Oklahoma City [* * *] OK 536 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Omaha [* * *] NE 644 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Orlando [* * *] FL 458 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Owatonna [* * *] MN 620 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Pensacola [* * *] FL 448 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Philadelphia [* * *] PA 228 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Phoenix [* * *] AZ 666 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Phoenix [* * *] AZ 666 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Pittsburgh [* * *] PA 234 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Portland [* * *] OR 672 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Portsmouth [* * *] VA 252 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Poughkeepsie [* * *] NY 133 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Providence [* * *] RI 130 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Raleigh [* * *] NC 426 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Redding [* * *] CA 724 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Reno [* * *] NV 720 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Richmond [* * *] VA 248 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Rochester [* * *] NY 974 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Rocky Mt. [* * *] NC 951 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Sacramento [* * *] CA 726 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Salinas [* * *] CA 736 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Salt Lake City [* * *] UT 660 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Antonio [* * *] TX 566 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Diego [* * *] CA 732 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Diego [* * *] CA 732 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Francisco [* * *] CA 722 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Jose [* * *] CA 722 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Luis Obispo [* * *] CA 740 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Santa Barbara [* * *] CA 740 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Seattle [* * *] WA 674 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
South Bend [* * *] IN 332 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Southfield [* * *] MI 340 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
15
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit B
Page 3 of 3
NATIONAL FIBER NETWORK POP LOCATION (by Site)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EXPECTED
SITE SERVICE DATE STATE LATA POP LOCATION ZIP CODE NPA-NXX
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Spokane [* * *] WA 676 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Springfield [* * *] MA 126 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
St. Louis [* * *] MO 520 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Stamford [* * *] CT 920 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Sunnyvale [* * *] CA 722 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Syracuse [* * *] NY 136 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tallahassee [* * *] FL 953 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tampa [* * *] FL 952 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Toledo [* * *] OH 326 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Topeka [* * *] KS 534 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Trenton [* * *] NJ 222 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tucson [* * *] AZ 668 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tulsa [* * *] OK 538 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Washington [* * *] DC 236 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Waterford [* * *] PA 924 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
West Haven [* * *] CT 920 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
West Palm Beach [* * *] FL 460
- -------------------------------------------------------------------------------------------------------------------------
Westfield [* * *] MA 126 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
White Plains [* * *] NY 132 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
White Plains [* * *] NY 132 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Youngstown [* * *] OH 322 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 1 of 5
CARRIERCONNECT-SM- DEDICATED INTERNET ACCESS SERVICES SCHEDULE
GLOBAL CROSSING'S IP NETWORK
DEDICATED INTERNET ACCESS SERVICES permit direct access to the Internet via
Global Crossing's nationwide IP network via DS-1, DS-3, or OC-3 dedicated
circuits at speeds ranging from 1.544 mbps to 155 mbps. Connectivity is via the
dedicated circuit between Jato's router to the Global Crossing router located
nearest a Global Crossing SONET-POP. Some Global Crossing Internet services,
including webhosting and e-mail services may be procured through a Global
Crossing Affiliate, which Affiliate may alter its list of offerings and their
nature from time to time.
1. RATES AND CHARGES.
Pricing for CarrierConnect-SM- Dedicated Internet Access Services is based
upon :
(i) the length of the circuit term commitment; and
(ii) Jato maintaining, on a monthly basis, [* * *]. If [* * *]
Global Crossing's network, then [* * *].
<TABLE>
<CAPTION>
MONTHLY RECURRING CHARGE (MRC)
- --------------------------------------------------------------------------
[* * *] YEAR [* * *] YEAR [* * *] YEAR
CIRCUIT CAPACITY TERM TERM TERM
MRC MRC MRC
- --------------------------------------------------------------------------
<S> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *]
- --------------------------------------------------------------------------
</TABLE>
NOTES:
(1) [* * *] access bandwidth start at a minimum of [* * *]
(2) [* * *] access bandwidth start at a minimum of [* * *]
NON-RECURRING CHARGES (NRC)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
[* * *] YEAR [* * *] YEAR [* * *] YEAR EXPEDITE CHANGE CHARGE
CIRCUIT CAPACITY TERM TERM TERM NRC CHARGE
NRC NRC
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: A one time fee of [* * *] will be assessed for any de-installation of
any CarrierConnect-SM- Dedicated Internet Access circuit.
Upon signature of a CarrierConnect-SM- Service Request (CCSR) by Jato, the
Parties agree that the CCSR constitutes a firm circuit order and should Jato
cancel such ordered circuit(s) prior to the Service Date Jato will pay the
applicable cancellation charge below.
<TABLE>
<CAPTION>
- ---------------------------------------
CIRCUIT CANCELLATION CHARGES
- ---------------------------------------
<S> <C>
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
</TABLE>
17
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 2 of 5
2. Global Crossing Acceptable Use and Security Policies
2.1 Jato and its customers shall comply with Global Crossing's
Acceptable Use and Security Policies (collectively, the
"Policy"), which Policy Global Crossing may modify at any
time. The current, complete Policy is available for review at
http://www.globalcenter.net/aup/ (Global Crossing may change
the Policy and website address via electronic notice). Without
limiting the Policy, generally, neither Jato nor its customers
may use Global Crossing's network, machines, or services in
any manner which:
(i) violates any applicable law, regulation, treaty, or
tariff;
(ii) violates the acceptable use policies of any networks,
machines; or services which are accessed through
Global Crossing's network;
(iii) infringes on the intellectual property rights of
others.
Prohibited activity includes, but is not limited to,
unauthorized use (or attempted unauthorized use) of any
machines or networks; denial of service attacks; falsifying
header information or user identification or information;
monitoring or scanning the networks of others without
permission; sending unsolicited bulk e-mail; maintaining an
open mail relay; collecting e-mail addresses from the Internet
for the purpose of sending unsolicited bulk e-mail or to
provide collected addresses to others for that purpose; and
transmitting or receiving copyright-infringing or obscene
material.
2.2 Jato and its customers are responsible for the security of
their own networks and machines. Global Crossing assumes no
responsibility or liability for failures or breach of
Jato-imposed protective measures, whether implied or actual.
Abuse that occurs as a result of Jato's systems or account
being compromised may result in suspension of the Dedicated
Internet Access Services or account access by Global Crossing.
If a security related problem is escalated to Global Crossing
for resolution, Global Crossing will resolve the problem in
accordance with its then-current Policy. Without limiting the
Policy, generally, the following activities are prohibited:
(i) fraudulent activities of any kind;
(ii) network disruptions of any kind;
(iii) unauthorized access, exploitation, or monitoring.
2.3 Jato shall be responsible for enforcing the Policy for any
third parties (including its customers) accessing the Internet
through Jato's use of the Network Services; and shall defend
and indemnify Global Crossing with respect to claims related
to such third party access.
2.4 Global Crossing reserves the right to suspend the Dedicated
Internet Access Services for Jato's or its customers' failure
to comply with the requirements of Global Crossing's
then-current Policy. Further, Global Crossing may terminate
the Dedicated Internet Access Services for recurring
violations of the Policy by Jato or its customers.
18
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 3 of 5
CARRIERCONNECT-SM- DEDICATED INTERNET ACCESS
IP POP LIST
<TABLE>
<CAPTION>
- -----------------------------------------------------------
GENERAL
LATA POP CITY AVAILABILITY
- -----------------------------------------------------------
<S> <C> <C> <C>
[* * *] [* * *] San Francisco [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Los Angeles [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Cleveland [* * *]
- -----------------------------------------------------------
[* * *] [* * *] New York City [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Washington, DC [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Kansas City [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Seattle [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Rochester [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Denver [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Chicago [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Dallas [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Boston [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Philadelphia [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Atlanta [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Detroit [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Houston [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Phoenix [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Austin [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Raleigh [* * *]
- -----------------------------------------------------------
[* * *] [* * *] San Diego [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Tampa [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Miami [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Orlando [* * *]
- -----------------------------------------------------------
[* * *] [* * *] Minneapolis [* * *]
- -----------------------------------------------------------
</TABLE>
19
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 4 of 5
SONET-POP LIST
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------------------------------------------------
SWITCH WHIP SWITCH WHIP
LATA ST CITY NPA-NXX HUB LATA ST CITY NPA-NXX HUB
- --------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *] OH Akron [* * *] [* * *] [* * *] NC Greensboro [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NY Albany [* * *] [* * *] [* * *] SC Greenville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NM Albuquerque [* * *] [* * *] [* * *] PA Harrisburg [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] PA Altoona [* * *] [* * *] [* * *] MT Helena [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] CA Anaheim [* * *] [* * *] [* * *] TX Houston [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] GA Atlanta [* * *] [* * *] [* * *] IN Indianapolis [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX Austin [* * *] [* * *] [* * *] MS Jackson [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MD Baltimore [* * *] [* * *] [* * *] FL Jacksonville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] LA Baton Rouge [* * *] [* * *] [* * *] MO Kansas City [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MI Battle Creek [* * *] [* * *] [* * *] NV Las Vegas [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MT Billings [* * *] [* * *] [* * *] NE Lincoln [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] AL Birmingham [* * *] [* * *] [* * *] CA Los Angeles [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] ID Boise [* * *] [* * *] [* * *] KY Louisville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MA Boston [* * *] [* * *] [* * *] GA Macon [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] KY Bowling [* * *] [* * *] [* * *] FL Miami [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NY Buffalo [* * *] [* * *] [* * *] WI Milwaukee [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] WY Casper [* * *] [* * *] [* * *] MN Minneapolis [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NC Charlotte [* * *] [* * *] [* * *] AL Mobile [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TN Chattanooga [* * *] [* * *] [* * *] TN Nashville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] IL Chicago [* * *] [* * *] [* * *] LA New Orleans [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Cincinnati [* * *] [* * *] [* * *] NY New York City [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Cleveland [* * *] [* * *] [* * *] NJ Newark [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] CO Colorado [* * *] [* * *] [* * *] CA Oakland [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Columbus [* * *] [* * *] [* * *] OK Oklahoma [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX Dallas [* * *] [* * *] [* * *] NE Omaha [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Dayton [* * *] [* * *] [* * *] FL Orlando [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] FL Daytona [* * *] [* * *] [* * *] FL Pensacola [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] CO Denver [* * *] [* * *] [* * *] PA Philadelphia [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] IA Des Moines [* * *] [* * *] [* * *] AZ Phoenix [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MI Detroit [* * *] [* * *] [* * *] PA Pittsburgh [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] WI Eau Claire [* * *] [* * *] [* * *] OR Portland [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX El Paso [* * *] [* * *] [* * *] NY Poughkeepsie [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] PA Erie [* * *] [* * *] [* * *] RI Providence [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OR Eugene [* * *] [* * *] [* * *] NC Raleigh [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX Fort Worth [* * *] [* * *] [* * *] CA Redding [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] FL Ft. Lauderdale [* * *] [* * *] [* * *] NV Reno [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] FL Ft. Myers [* * *] [* * *] [* * *] VA Richmond [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] WI Green Bay [* * *] [* * *] [* * *] NY Rochester [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
20
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 5 of 5
SONET-POP LIST
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SWITCH WHIP
LATA ST CITY NPA-NXX HUB
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
[* * *] NC Rocky Mount [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA Sacramento [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA Salinas [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] UT Salt Lake [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] TX San Antonio [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San Diego [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San Francisco [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San Jose [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San LuisObispo [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] WA Seattle [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] IN South Bend [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] MI Southfield [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] WA Spokane [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] MA Springfield [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] MO St. Louis [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CT Stamford [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] NY Syracuse [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] FL Tallahassee [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] FL Tampa [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] OH Toledo [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] KS Topeka [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] AZ Tucson [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] OK Tulsa [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] DC Washington [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] FL West Palm [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] NY White Plains [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] OH Youngstown [* * *] [* * *]
- ---------------------------------------------------------------
</TABLE>
Global Crossing agrees to provide connectivity from Global Crossing's SONET POPs
to Global Crossing's WHIP POP's at Global Crossing's expense for the following
routes and locations previously engineered and quoted:
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
21
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit D
Page 1 of 3
1. CarrierConnect-SM- IP Plus
Global Crossing or a Global Crossing Affiliate will provide Jato with
Internet access according to the following price schedule:
CARRIERCONNECT IP PLUS PRICING
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
INSTALLATION CHARGES MONTHLY RECURRING CHARGES PRICE/MB
-----------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
- -------------------------------------------------------------------------------------------------------------------------------
FLLU DS-1 [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
MBPS [* * *] ACCESS REQUIRES A MINIMUM OF [* * *].
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2. IP Plus Service includes Global Crossing's CarrierConnect-SM- Internet
access service, plus enhanced IP Transit Services. IP Plus is designed to
satisfy the "Routerless" requirements in Jato's off-net cities and includes
provisioning Jato's end users' enhanced IP services, mail, news, and other
applications.
3. For the term of this Agreement, Jato appoints Global Crossing as its
"Strategic Preferred Supplier" with respect to transport above layer 2
transport, and of IP Transit and IP Plus Services and future services and
applications related thereto as made available and offered by Global Crossing
(hereafter referred to as "Transit Services and Applications"). Transit
Services and Applications do not include [* * *]. "Strategic Preferred
Supplier" means that Global Crossing shall receive a right to bid on all
Transit Services and Applications required by Jato, provided that such bid
must be made in writing. Global Crossing will be the "Strategic Preferred
Supplier" of such Transit Services and Applications; provided however,
acceptance of any bid by Jato shall be contingent upon a
22
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
determination by Jato, including but not to be limited by pricing, service
level commitments, availability, functionality and marketability, that Global
Crossing products and services are equal to or better than other similar
product and service offerings made available to Jato by third parties. Global
Crossing shall periodically advise Jato of new Transit Services and
Applications introduced or scheduled for introduction. Global Crossing shall
have ten (10) business days after receipt by Global Crossing of a
solicitation for bid notice from Jato to provide to Jato a qualified bid, to
be considered with bids from other qualified parties. Jato shall not enter
into a commitment for Transit Services or Applications without notice to
Global Crossing of a bid opportunity. Such Strategic Preferred Supplier
status shall not apply where [* * *] of the scheduled introduction of such
new Transit Services and Applications; [* * *].
23
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit D
Page 2 of 3
2. Mail Services
Global Crossing or a Global Crossing Affiliate will provide e-mail
accounts (storage space, account assignment) to JATO (or to the
end-user clients of JATO). Global Crossing or a Global Crossing
Affiliate will provide an initial [* * *] of storage space per user
account. Global Crossing or a Global Crossing Affiliate will offer
storage upgrades and end-user provisioning of individual e-mail
accounts on a [* * *] e-mail server.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUMMARY OF E-MAIL CHARGES
- ---------------------------------------------------------------------------------------------------
E-MAIL SERVICE NON-RECURRING CHARGES
- ---------------------------------------------------------------------------------------------------
<S> <C>
New Account Set-up, 1 Year Term [* * *]
- ---------------------------------------------------------------------------------------------------
New Account Set-up, 2 Year Term [* * *]
- ---------------------------------------------------------------------------------------------------
New Account Set-up, 3 Year Term [* * *]
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
BASIC [* * *] MAIL SERVICE,
ACCESS VIA POP OR WEB MAIL MONTHLY RECURRING CHARGES
- -----------------------------------------------------------------------------------
<S> <C>
1 - 9,999 [* * *]
- -----------------------------------------------------------------------------------
10,000 - 49,999 [* * *]
- -----------------------------------------------------------------------------------
50,000 - 99,999 [* * *]
- -----------------------------------------------------------------------------------
100,000 - 499,999 [* * *]
- -----------------------------------------------------------------------------------
500,000+ [* * *]
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ADDITIONAL CAPACITY MONTHLY RECURRING CHARGES
- -----------------------------------------------------------------------------------
<S> <C>
1 - 9,999 [* * *]
- -----------------------------------------------------------------------------------
10,000 - 49,999 [* * *]
- -----------------------------------------------------------------------------------
50,000 - 99,999 [* * *]
- -----------------------------------------------------------------------------------
100,000 - 499,999 [* * *]
- -----------------------------------------------------------------------------------
500,000+ [* * *]
- -----------------------------------------------------------------------------------
</TABLE>
3. IP Addressing and PVC Provisioning
After successful completion by JATO and acceptance by Global Crossing
of the IP Justification Form (GBLX form cs311), Global Crossing or a
Global Crossing Affiliate will obtain for JATO the IP Addresses
necessary for JATO's applications. In addition, Global Crossing or a
Global Crossing affiliate [* * *] into the Global Crossing Internet
Platform.
SUMMARY OF IP CHARGES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
#IP ADDRESSES NON-RECURRING CHARGE #IP ADDRESSES NON-RECURRING CHARGE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 [* * *] 16 [* * *]
- ---------------------------------------------------------------------------------------------------
2 [* * *] 32 [* * *]
- ---------------------------------------------------------------------------------------------------
3 [* * *] 64 [* * *]
- ---------------------------------------------------------------------------------------------------
4 [* * *] 128 [* * *]
- ---------------------------------------------------------------------------------------------------
8 [* * *] 256 [* * *]
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SUMMARY OF PVC CHARGES
- --------------------------------------------------------------------------------------------------
<S> <C>
[* * *] (Non-Recurring Charge) [* * *]
[* * *]
- --------------------------------------------------------------------------------------------------
</TABLE>
24
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit D
Page 3 of 3
4. News Services
Global Crossing or a Global Crossing Affiliate will provide for JATO
News Access, offering individual access to newsgroups, where such
access can be made commercially available. (End-user clients subscribe
to Usenet groups using Netscape, Microsoft or other compatible
newsreaders.) Global Crossing will provide JATO the news server address
and other information necessary for this access. JATO will provide to
Global Crossing lists of IPs to allow access (subscribers).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SUMMARY OF NEWS ACCESS CHARGES
- ---------------------------------------------------------------------------------
<S> <C>
News Access (Monthly Recurring Charge) [* * *]
- ---------------------------------------------------------------------------------
</TABLE>
5. DNS (Domain Name Service)
Global Crossing or a Global Crossing Affiliate will obtain a list of
requested domain names from JATO. When the names are available (that is,
not already registered to another account) according to domain name
registry databases (maintained by InterNIC), Global Crossing will obtain
on behalf of JATO the requested domain name where such name is available
and insure that DNS tables are updated to include the domain name.
(Note: InterNIC will bill JATO directly for the domain name service.
Currently, InterNIC charges $70 for the initial 2 years and $35 for each
additional year.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUMMARY OF DNS CHARGES
- -------------------------------------------------------------------------------
<S> <C>
Register New Domain [* * *]
- -------------------------------------------------------------------------------
Transfer Existing Domain [* * *]
- -------------------------------------------------------------------------------
Provision Domains on Mail platform [* * *]
- -------------------------------------------------------------------------------
</TABLE>
25
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Schedule I
Page 1 of 2
JATO REVENUE SCHEDULE - QUARTERLY COMMITMENT OUTLINE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RAMP MINIMUM QUARTERLY YEAR YEAR TOTAL
MONTH MONTH/YEAR CHARGE QUARTER/YEAR TOTAL TOTAL AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Feb-00 [* * *]
2 Mar-00 [* * *]
3 Apr-00 [* * *]
4 May-00 [* * *]
5 Jun-00 [* * *]
6 Jul-00 [* * *]
7 Aug-00 [* * *]
8 Sep-00 [* * *] [* * *] [* * *]
9 Oct-00 [* * *]
10 Nov-00 [* * *]
11 Dec-00 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
12 Jan-01 [* * *]
13 Feb-01 [* * *]
14 Mar-01 [* * *] [* * *] [* * *]
15 Apr-01 [* * *]
16 May-01 [* * *]
17 Jun-01 [* * *] [* * *] [* * *]
18 Jul-01 [* * *]
19 Aug-01 [* * *]
20 Sep-01 [* * *] [* * *] [* * *]
21 Oct-01 [* * *]
22 Nov-01 [* * *]
23 Dec-01 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
24 Jan-02 [* * *]
25 Feb-02 [* * *]
26 Mar-02 [* * *] [* * *] [* * *]
27 Apr-02 [* * *]
28 May-02 [* * *]
29 Jun-02 [* * *] [* * *] [* * *]
30 Jul-02 [* * *]
31 Aug-02 [* * *]
32 Sep-02 [* * *] [* * *] [* * *]
33 Oct-02 [* * *]
34 Nov-02 [* * *]
35 Dec-02 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
36 Jan-03 [* * *]
37 Feb-03 [* * *]
38 Mar-03 [* * *] [* * *] [* * *]
39 Apr-03 [* * *]
40 May-03 [* * *]
41 Jun-03 [* * *] [* * *] [* * *]
42 Jul-03 [* * *]
43 Aug-03 [* * *]
44 Sep-03 [* * *] [* * *] [* * *]
45 Oct-03 [* * *]
46 Nov-03 [* * *]
- ----------------------------------------------------------------------------------------------------------------
47 Dec-03 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
26
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Schedule I
Page 2 of 2
JATO REVENUE SCHEDULE
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RAMP MINIMUM QUARTERLY YEAR YEAR TOTAL
MONTH MONTH/YEAR CHARGE QUARTER/YEAR TOTAL TOTAL AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
48 Jan-04 [* * *]
49 Feb-04 [* * *]
50 Mar-04 [* * *] [* * *] [* * *]
51 Apr-04 [* * *]
52 May-04 [* * *]
53 Jun-04 [* * *] [* * *] [* * *]
54 Jul-04 [* * *]
55 Aug-04 [* * *]
56 Sep-04 [* * *] [* * *] [* * *]
57 Oct-04 [* * *]
58 Nov-04 [* * *]
59 Dec-04 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
60 Jan-05 [* * *]
61 Feb-05 [* * *]
62 Mar-05 [* * *] [* * *] [* * *]
63 Apr-05 [* * *]
64 May-05 [* * *]
65 Jun-05 [* * *] [* * *] [* * *]
66 Jul-05 [* * *]
67 Aug-05 [* * *]
68 Sep-05 [* * *] [* * *] [* * *]
69 Oct-05 [* * *]
70 Nov-05 [* * *]
71 Dec-05 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
72 Jan-06 [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
[* * *] CONTRACT TOTAL [* * *] CONTRACT TOTAL [* * *]
------------------------------------------------------------------------------------
</TABLE>
27
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Attachment A
[LOGO] SHARON POSADNI
Manager National Contract Admin
Phone: 716-777-4799
Fax: 716-454-5825
FRONTIER COMMUNICATIONS OF THE WEST, INC. ("FRONTIER")
A GLOBAL CROSSING LTD. COMPANY
----------------------------------
SERVICE REQUEST
----------------------------------
To: Jato Communications Corporation
Attn: Jerry Dinsmore, President and CEO
Date: February 2, 2000
Subject: CarrierConnect-SM- Dedicated Internet Access Service Request
Facsimile #: 303-226-8380
PLEASE SIGN, DATE AND RETURN VIA FACSIMILE TO MY ATTENTION SERVICE REQUEST #1
================================================================================
By signature below, Jato acknowledges acceptance of this Service Request for
CarrierConnect-SM- Dedicated Internet Access Service under the ISP Capacity
Agreement between Global Crossing Bandwidth, Inc. (f/k/a Frontier Communications
of the West, Inc. ) ("Global Crossing") and Jato Communications Corporation
("Jato" or "Purchaser"), dated simultaneously with this Service Request (the
"Agreement"). All terms and conditions under the Agreement are applicable unless
otherwise stated below and are incorporated herein.
1. Global Crossing will order and install the following circuit(s) for
Jato. Jato shall be charged the applicable MRC (as defined below) and
any other applicable charges as described under the Agreement.
CUSTOMER SPECIFIC PRICING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MRC PER
QUANTITY CIRCUIT CAPACITY MBPS TOTAL MRC TERM
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
</TABLE>
2. Upon signature by Jato below, the Parties agree that this Service
Request constitutes a firm circuit order and should Jato cancel the
above ordered circuit(s) prior to the Service Date as described under
the Agreement, Jato will pay the applicable cancellation charge below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
CARRIERCONNECT-SM- CIRCUIT CANCELLATION CHARGES
- ------------------------------------------------------------
<S> <C>
[* * *] [* * *]
- ------------------------------------------------------------
[* * *] [* * *]
- ------------------------------------------------------------
</TABLE>
3. The Parties agree that a signed facsimile hereof shall be binding.
JATO COMMUNICATIONS CORPORATION
By: _________________________________
Jerry Dinsmore
President and CEO
Date: _______________________________
<PAGE>
[LOGO]
================================================================================
SERVICES AGREEMENT
- -------------------------------------------------------------------------------
PARTNER: GLOBAL CROSSING BANDWIDTH, INC.
(referred to as "PARTNER" or "GLOBAL CROSSING")
- -------------------------------------------------------------------------------
ADDRESS:
- -------------------------------------------------------------------------------
PHONE:
- -------------------------------------------------------------------------------
FAX:
- -------------------------------------------------------------------------------
E-MAIL:
- -------------------------------------------------------------------------------
WEB:
- -------------------------------------------------------------------------------
================================================================================
THIS SERVICES AGREEMENT (the "AGREEMENT") between JATO COMMUNICATIONS
CORP., a Delaware corporation with offices at 1099 18th Street, Suite 2200,
Denver, Colorado 80202 ("JATO") and Partner contains the terms and conditions
whereby Jato appoints Partner as a wholesaler of Jato's DSL Plus-TM- network
services and permits Partner to order certain services from Jato pursuant to an
order form, combine such services with Partner's service offering and distribute
the combined services to its customers for consumption or for further
redistribution. Partner and Jato may be referred to herein individually as a
"PARTY" or together as the "PARTIES."
================================================================================
DULY AUTHORIZED REPRESENTATIVES of each party have executed this
Agreement as of the date indicated under their signatures.
<TABLE>
<S> <C>
JATO COMMUNICATIONS CORP. GLOBAL CROSSING BANDWIDTH, INC.
By: /s/ Gerald K. Dinsmore By: /s/ Brian V. Fitzpatrick
------------------------------------- --------------------------------------------------------
Printed Name: Gerald K. Dinsmore Printed Name: Brian V. Fitzpatrick
--------------------------- ----------------------------------------------
Title: President and C.E.O. Title: President North American Operations Carrier Services
---------------------------------- ------------------------------------------------------
Dated: Dated: 2/23/00
---------------------------------- ------------------------------------------------------
By: /s/ Charles F. Barker
--------------------------------------------------------
Printed Name: Charles F. Barker
----------------------------------------------
Title: C.F.O. Carrier Svcs.
------------------------------------------------------
Dated: February 23, 2000
------------------------------------------------------
</TABLE>
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
1. DEFINITIONS.
(a) "CUSTOMER" means a carrier or other customer of Partner or a customer
of one of Partner's wholesale customers that utilizes a Jato End User Circuit
through Partner to use Jato services.
(b) "CUSTOMER PREMISE EQUIPMENT (CPE)" means that equipment that is
required at the Customer's premise to utilize the Jato Services.
(c) "END USER CIRCUIT" means a qualified copper loop leased by Jato from
the incumbent or competitive local exchange carrier to a Customer's premise.
(d) "JATO SERVICES" means Jato's services that Jato makes available to
Partner for resale, as set forth in EXHIBIT A, which exhibit Jato may amend
from time to time. Jato agrees to a review of pricing every [* * *] for the
Services. If the pricing in this Agreement is found to be [* * *] per basic
line or significant feature or function) than Jato's then current standard
pricing for Services of the same type, size, network configuration and
technical characteristics, Jato agrees to [* * *].
(e) "SERVICE ORDER" means an order for Jato Services submitted by Partner
on Jato's online order entry form.
2. NONEXCLUSIVE APPOINTMENT.
Jato hereby appoints Partner, and Partner hereby accepts the appointment,
as a nonexclusive wholesaler of Jato to promote the services as further
provided herein. The Parties understand that this appointment is
non-exclusive and that Jato may appoint other representatives, including
without limitation value added resellers, and may use its own direct sales
personnel to promote their own respective services other than to Customers.
3. JATO APPOINTMENT AND TARGETED MARKETS. Partner hereby appoints Jato and Jato
hereby accepts the appointment as a nonexclusive preferred provider of DSL
services for Partner and for customers of Partner. The Parties understand that
this appointment is non-exclusive and that Partner may appoint other providers,
including without limitation other DSL providers, as well as use its own
affiliates. Jato will develop an OSS integration strategy which will enable
Partner or Partner's Global Crossing affiliates to enter orders directly into
Jato's provisioning queues from Global Crossing's in-house systems.
Jato will develop service level commitments generally in the form attached
as EXHIBIT C and pricing programs that will permit Global Crossing entities to
promote DSL successfully in markets where Jato services are available. The
parties shall revisit the service level commitments every [* * *] so as to
assure that such commitments are responsive to competitive service level
expectations. From time to time, Partner and Jato will reevaluate the markets
identified in EXHIBIT D and revise the list of markets to reflect Jato's
performance and the Global Crossing organization's then-current assessment of
the value that Jato can bring to Global Crossing in additional markets.
4. PARTNER ESTIMATES:
Partner is forecasting (but is not obligating itself to order) seventy
five thousand (75,000) business-class DSL lines over a 5-year period,
provided that the quality, reliability and price of such lines provided by
Jato are competitive with other business DSL offerings available to Partner,
and the service level agreements provided by Jato are consistent with what
Partner offers to its customers and what Partner's customers offer to their
end users. Except as otherwise agreed by the parties, each circuit ordered by
Partner shall have no less than a one (1) year term commitment. The cities
identified for this forecast are set out in Exhibit B.
5. JATO SERVICES PROMOTIONS AND ORDERS.
Partner shall promote the Jato Services to its customers in joint Jato and
Partner markets at such level of effort as Partner may determine in its sole
discretion. Partner is authorized to include Jato's trade names, trademarks,
service marks, titles and logos in Partner's marketing and sales materials
when appropriate. Each Party may elect to provide a hot link to the other
Party's Website from their respective Website, provided both Parties agree
upon the framing and the information made available on and around the hot
link. Partner shall submit Service Orders to Jato for the provision of Jato
Services to be provided on behalf of Customers. Each Service Order will be
submitted on Jato's online order entry form or another electronic interface
as agreed upon by the Parties. The Service Orders will set forth the Jato
Services ordered, the locations for delivery of same, and applicable term
and/or minimum speed commitments and other terms and conditions as the
parties may determine. Jato will use commercially reasonable efforts to
confirm receipt of each Partner Service Order, within 24 hours of receipt,
and to provision the Jato Services for the Customer in accordance with the
Service Order. The prices and volume discounts for such Jato Services are set
forth in EXHIBIT A. The provision of Jato Services and End User Circuits by
Jato for Customers is subject to availability, including, but not limited to,
availability of suitable facilities, collocation space and equipment.
6. CIRCUITS.
(a) Upon receiving an order for an End User Circuit, Jato will use
commercially reasonable efforts to provision an End User Circuit in accordance
with the timeframes set out in the order. If Jato is unable to provision a
circuit at the requested speed, Jato will use commercially reasonable efforts to
provide the maximum available throughput rate for the requested circuit. Jato
will notify Partner when the circuit has been provisioned and the throughput
rate available. If an End User Circuit cannot be provided by the requested date,
or an alternate maximum available throughput rate is unacceptable, Partner may
cancel the order without penalty.
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
(b) Where: (1) Partner's ILEC affiliates agree, (2) such affiliates
offer DSL lines in the specific area of interest to Jato, and (3) where
Partner is not precluded from offering such lines to Jato, Jato will have the
right to purchase [* * *] to be determined by both parties. Where Partner's
non-ILEC affiliates agree, (2) [* * *] in the specific area of interest to
Jato, and (3) [* * *] to Jato, [* * *] to be determined by both parties.
7. EQUIPMENT.
Partner will provide all Customer Premise Equipment required to support
the Jato Services provided to the Customers. Jato assumes no liability for
Customer Premise Equipment provided by Partner. Partner, upon request, may
purchase Customer Premise Equipment, installation and maintenance services
from Jato under pricing, terms and conditions to be mutually agreed upon by
the Parties.
8. PARTNER OBLIGATIONS.
In connection with the performance of its obligations in this Agreement in
a professional and businesslike manner, Partner agrees as follows:
(a) Partner will obtain and maintain at its own expense any licenses,
registrations, permits and approvals needed for it to perform its duties under
this Agreement.
(b) Partner is responsible for first level support to Customers and will
provide prompt, reliable and competent technical and other assistance to
Customers with respect to the Jato Services.
(c) Partner will not knowingly provide, nor knowingly allow its Customers
to provide, any content to Jato (or its network) that: (i) infringes on any
third party's copyright, patent, trademark, trade secret or other proprietary
rights or rights of publicity or privacy; (ii) violates any law, statute,
ordinance or regulation (including without limitation the laws and regulations
governing export control); (iii) is defamatory, trade libelous, unlawfully
threatening or unlawfully harassing; (iv) is obscene or pornographic or contains
child pornography; or (v) contains any viruses, trojan horses, worms, time
bombs, cancelbots or other computer programming routines that are intended to
damage, detrimentally interfere with, surreptitiously intercept or expropriate
any system, data or personal information. In the event that Jato becomes aware
of any such event, it will promptly advise Partner and the parties shall confer
and agree upon the appropriate course of action to address the issue.
(d) Partner will not, without Jato's prior written approval, make any
representation, warranties or guarantees concerning the Jato Service other than
as expressly set forth in this Agreement or in Jato's marketing materials.
9. JATO'S OBLIGATIONS.
In connection with the performance of its obligations in this Agreement in
a professional and businesslike manner, Jato agrees as follows:
(a) Jato will provide reasonable commercial and technical assistance to
Partner as may be necessary and appropriate to assist Partner in effectively
carrying out its obligations under this Agreement.
(b) Jato will obtain and maintain at its own expense any licenses,
registrations, permits and approvals needed for it to perform its duties under
this Agreement and provide the Jato Services.
(c) Jato will, from time to time and subject to availability, provide to
Partner and its agents sales promotion materials, technical manuals, sales aides
and other materials helpful in the promotion of sales of the Jato Services.
(d) Jato is responsible for maintaining End User Circuits. Jato reserves
the right, from time to time, to interrupt service for maintenance reasons.
Jato will provide at least 2 days written notice to Partner in advance of
such interruptions, and Partner will not be entitled to compensation for such
interruptions. Jato will cooperate with Partner to assure that any reasonable
customer notification requirements of Partner with respect to service are
met, and will seek to perform all maintenance during off-peak hours, and
where possible during the period of the day of lowest usage.
(e) Jato shall provide to end users through Partner and its customers
Jato business DSL lines at a quality of service that is no lower than the
quality of service generally offered by Partner to its customers in its own
tariffs or service level agreements on all comparable dimensions. In the
event that Partner is required to extend credits to its customers for failure
to meet service level assurance provisions that are granted as a the result
of Jato's failure to provide the requisite DSL quality of service, Jato shall
extend credits to Partner that make Partner whole for the credits that
Partner extends, as defined in the attached Service Level Agreement (Exhibit
C.).
(f) So long as Jato is provisioning one or more lines ordered by
Partner or its wholesale carrier or other customers, and has access to
customer information with respect to the end user for such line(s), Jato will
not solicit such customers to purchase services or facilities that are being
offered to such end user(s) by Partner or a customer of Partner, nor seek to
have such end user(s) convert any service provided by Partner or its
wholesale customer to Jato.
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
10. FEES AND PAYMENT.
(a) Partner will pay all [* * *] incurred under this Agreement as well as
all expenses associated with its office(s), employees and other activities
utilized under this Agreement. Except to the extent that Partner provides Jato
with appropriate tax exemptions certificates, any tax or tax-like fee or charge
imposed by any governmental authority on, or measured by, the transactions
between Jato and Partner (exclusive of taxes based on Jato's net income) will be
paid by Partner in addition to the fees invoiced. (b) Jato will invoice Partner
monthly in advance for all fees due, with the exception of installation, line
provisioning, and pro-rated Jato Service charges, which will be billed in
arrears. Partner may direct Jato to deliver invoices in any of the following
formats: (i) a paper format (which will be the format for the billing in the
event Partner does not direct Jato otherwise); (ii) a paper format summary with
electronic transmission to provide the detailed information of the invoice; or
(iii) an electronic transmission.
(b) Adjustments for the quantities of Jato Services established or
discontinued in any billing period will be pro-rated to the number of days based
on a 30-day month, and Jato will provide credit where appropriate. Jato will
upon request and if available, furnish such detailed information as may
reasonably be required for verification of the bill. In the event of a conflict
regarding credits or credit adjustments, Partner must pay all amounts not in
dispute and provide Jato with a written request for bill adjustment. Partner
will have 90 days from its receipt of an invoice to dispute an invoice and, to
the extent available, provide Jato with records and other materials that enable
resolution of the dispute. In the event a dispute is not submitted within the
allotted time frame, Partner will waive all rights to any billing adjustment for
that invoice.
(c) Jato will bill Partner for all existing End User Circuits up to the day
of the month where Jato has disconnected the End User Circuit as requested by
Partner. If Jato, upon receipt of an End User Circuit disconnection request, is
unable to disconnect an End User Circuit on Partner's requested date, Jato will
only bill Partner up to the requested disconnection date as specified on an End
User Circuit disconnection request. If Partner cancels an End User Circuit prior
to the completion of circuit set up, then, except as provided in paragraph 4
hereof, Partner is responsible to pay all line provisioning and installation
fees incurred up to that point in time.
(d) All invoices are due within 30 days following Partner's receipt of an
invoice. If Partner makes late payment of any undisputed portion of the invoiced
amount, or if Partner makes payment of any undisputed portion of the invoiced
amount in funds that are not immediately available to Jato, then interest on the
unpaid balance will begin accruing at a rate of one and one-half percent (1.5%)
per month or the maximum allowed by law, whichever is less, and Partner will pay
all collection costs incurred by Jato (including reasonable attorneys' fees).
Partner will pay Jato the fees owed for services rendered regardless of whether
Partner collects payment from Customers. All fees will be paid in U.S. Dollars.
11. TERM AND TERMINATION.
(a) TERM. The term of this Agreement will commence on the last date on
which this Agreement is executed by a party and, unless earlier terminated as
set forth below, continue for sixty (60) months. This Agreement will renew for
additional one (1) year terms unless either Party gives the other Party written
notice of termination at least 30 days prior to the end of the then-current
term.
(b) TERMINATION BY JATO. Jato may terminate this Agreement, but not the
Jato Services or End User circuits already installed or ordered, by written
notice immediately upon (i) a material breach by Partner of the terms of this
Agreement, including, but not limited to, any default in Partner's payment
obligations not cured within 30 days of Partner's receipt of written notice as
to the nature of the breach; provided, however, that if Partner shall have
commenced actions in good faith to cure such breach (other than a payment
breach), which is not capable of being cured during such 30-day period, such
period shall be extended (not in excess of 90 days from receipt of the notice)
to allow Partner to continue such actions to cure such breach.
(c) TERMINATION BY PARTNER: Partner may terminate this Agreement if Jato
materially breaches the terms of this Agreement after providing thirty (30) days
advance written notice of the breach to Jato unless Jato has cured such breach
within such thirty (30) day period; provided, however, that if Jato shall have
commenced actions in good faith to cure such breach, which is not capable of
being cured during such 30-day period, such period shall be extended (not in
excess of 90 days from receipt of the notice) to allow Jato to continue such
actions to cure such breach. Partner may terminate this Agreement without
extension of the 30-day cure period if Partner concludes, after consultation
with Jato during such 30-day period, that the quality or reliability of Services
provided by Jato to Partner or to its customers suffers from quality or
reliability problems that are not likely to be cured within a reasonable time,
and Partner further concludes that continuation of this Agreement would
adversely impact its relationships with its customers who are or would receive
Jato services.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason: (i) Partner will pay Jato all monies due for any services rendered by
Jato pursuant to this Agreement as they accrue and become due; (ii) Partner's
authority to sell Jato Services hereunder will cease; (iii) each Party will
promptly return to the other all materials supplied hereunder; and (iv) each
Party will cease all use of other's Trademarks and will return all of the other
Party's property in its possession or control, including all copies thereof.
Provided Partner continues to pay for the Jato
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Services for existing Customers and for orders pending at the time of
termination (collectively, Existing Business), Jato will continue to provide
the Jato Services in accordance with the terms of this Agreement for the
Existing Business for a period of two years following the date of
termination, or until such Existing Business is canceled by Partner,
whichever occurs first. Jato and its other representatives will have the
right after the termination of the Existing Business with respect to a
Customer to deal with any and all persons and entities, including such
Existing Business Customers or potential customers who dealt with Partner,
without any liability or obligation of any kind to Partner. Each Party waives
the benefit of any law or regulation providing compensation to it arising
from the termination of or failure to renew this Agreement and each Party
represents and warrants that such waiver is irrevocable and enforceable by
the other Party.
12. CONFIDENTIALITY. In the performance of this Agreement, each party may
have access to confidential, proprietary or trade secret information
disclosed by the other party relating to software computer programs, object
code, source code, marketing plans, business plans, financial information,
specifications, flow charts and other data ("CONFIDENTIAL INFORMATION"). The
receiving party will use such Confidential Information only for the purposes
of this Agreement and will not copy, disclose, convey or transfer any of the
Confidential Information or any part thereof to any third party, except as
permitted under this Agreement. Neither Party will have any obligation with
respect to Confidential Information that: (i) is or becomes generally known
to the public by any means other than a breach of the obligations of a
receiving party; (ii) was previously known to the receiving party or rightly
received by a receiving party from a third party; or (iii) is independently
developed by or for the receiving party without reference to the disclosing
party's Confidential Information.
13. EACH PARTY'S MARKS. Each Party hereby grants to the other Party a
limited, nonexclusive right to use the other Party's regular trade names,
trademarks, service marks, titles and logos (the "LICENSED MARKS") in the
advertising, promotion and sale of the Jato Services, PROVIDED THAT the
specific Licensed Mark to be used and the nature of all such use of any
Licensed Mark is with each Party's prior review and approval. Neither Party
will make or permit alteration or removal of tags, labels, or identifying
marks placed by the other Party on or within their respective Services,
equipment or materials. Neither Party will use the other Party's trade names
or abbreviations (with the exception of a logo or mark or graphic design
provided by the other Party that indicates either Party is an authorized
Partner of the other Party) in the other Party's corporate title or name or
in any way that might result in confusion as to separate and distinct
identities of each Party. Either Party may terminate the other's right to use
all or any of its Licensed Marks at any time. Upon the expiration or earlier
termination of this Agreement, the licenses granted herein regarding the
Licensed Marks will immediately terminate and each Party will immediately
cease and desist all use of the Licensed Marks.
14. OWNERSHIP. Each Party will retain all right, title and interest in and to
all copyrights, patents, trademarks, trade secrets (including, but not
limited to, customer lists, which lists will include, but not be limited to,
lists of Customers hereunder), and all other intellectual property embodied
in their respective Services or the Licensed Marks, including any
improvements thereto or goodwill associated therewith. Customer related
information shall be deemed the Confidential Information of Partner.
15. LIMITATION OF LIABILITY. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR
ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL OR EXEMPLARY DAMAGES OF ANY
KIND, INCLUDING WITHOUT LIMITATION ANY LOSS OF USE, LOSS OF BUSINESS OR LOSS
OF PROFIT DAMAGES. UNDER NO CIRCUMSTANCES WILL EITHER PARTY'S LIABILITY TO
THE OTHER FOR DAMAGES UNDER THIS AGREEMENT EXCEED THE AMOUNT PAID BY PARTNER
TO JATO IN THE PREVIOUS TWELVE (12) MONTHS.
16. WARRANTY. JATO WARRANTS THAT THE JATO SERVICES SHALL BE PROVIDED IN
ACCORDANCE WITH THE SERVICE LEVEL AGREEMENT ATTACHED HERETO AS EXHIBIT C AND
MADE A PART HEREOF, AS WELL AS WITH INDUSTRY STANDARDS FOR DSL SERVICES.
FURTHER, JATO WARRANTS THAT PARTNER'S OR ITS CUSTOMER'S USE OR THE SALE OF
THE JATO SERVICES WILL NOT INFRINGE ANY THIRD PARTY'S INTELLECTUAL PROPERTY
RIGHTS. JATO EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND, WHETHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY, ACCURACY, AND FITNESS FOR A PARTICULAR PURPOSE. JATO AND ITS
SUPPLIERS MAKE NO WARRANTY THAT THE SERVICES WILL BE UNINTERRUPTED, TIMELY,
SECURE OR ERROR FREE; NOR DOES JATO MAKE ANY WARRANTY AS TO THE RESULTS THAT
MAY BE OBTAINED THROUGH THE JATO SERVICES.
17. INDEMNIFICATION.
(a) Except for claims arising out of the negligence or willful
misconduct of Jato, Partner will indemnify and hold Jato (including all
officers, directors, employees or agents thereof and their successors and
assigns) harmless from and against and all third party claims, suits, losses,
liabilities, damages, costs, fees and expenses (including reasonable
attorneys' fees) brought against or incurred by Jato that arise from or
relate to (i) Partner's or any Customer's improper use of the Jato Services,
and (ii) any breach by Partner of any of its obligations under this Agreement.
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
(b) Except for claims arising out of the negligence or willful
misconduct of Partner, Jato will indemnify and hold Partner (including all
officers, directors, employees, affiliates or agents thereof and their
successors and assigns) harmless from and against and all third party claims,
suits, losses, liabilities, damages, costs, fees and expenses (including
reasonable attorneys' fees) brought against or incurred by Partner that arise
from or relate to any breach by Jato of any of its obligations or warranties
under this Agreement.
18. FORCE MAJEURE. Neither party hereto shall be responsible for any failure to
perform its obligations under this Agreement (other than obligations to pay
money) if such failure is caused by acts of God, war, strikes, revolutions,
earthquake, lack or failure of transportation, electrical or telecommunications
facilities, laws or governmental regulations or other causes that are beyond the
reasonable control of such party.
19. GENERAL.
(a) INDEPENDENT CONTRACTOR. The relationship of the Parties shall be that
of independent contractors. Neither Party nor its agents will have authority to
make any agreement or incur any liability on behalf of the other Party, except
as set forth in this Agreement.
(b) NOTICE. Any notice required by this Agreement or given in connection
with it, will be in writing and will be deemed given to the other party upon
personal delivery, three days after mailing by certified mail, postage prepaid,
or next day when sent by a recognized overnight delivery service to the address
set forth on page one of this Agreement or such other address as a Party may
designate in writing pursuant to this provision.
(c) SEVERABILITY. If any term of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, then this Agreement,
including all of the remaining terms, will remain in full force and effect as if
such invalid or unenforceable term had never been included.
(d) WAIVER. Failure or delay by either party to exercise any right, power,
or privilege hereunder, will not operate as waiver thereof.
(e) GOVERNING LAW. This Agreement will be construed and enforced in
accordance with the laws of the state of Colorado.
(f) ASSIGNMENT. Neither Party may assign this Agreement or any rights or
obligations hereunder to a non-affiliated third party without the other
Party's prior written consent, which consent shall not be unreasonably
withheld. This Agreement shall transfer as a matter of law with respect to
any change of control of a Party.
(g) NO THIRD PARTY BENEFICIARIES. This Agreement benefits Partner and
Jato; there are no third party beneficiaries.
(h) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the attached
Exhibits constitutes the entire understanding between Partner and Jato with
respect to the subject matter provided herein and supercedes any prior
agreements or understandings excluding applicable tariffs. Amendments to this
Agreement must be in writing and signed by authorized representatives of both
Parties.
(i) HEADINGS. Headings used in this Agreement are provided for
convenience only and will not be used to construe meaning or intent.
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Pricing Grid: Business Grade DSL Services, with guaranteed SLA standards
Jato agrees to a review of pricing every [* * *] for the Services. If the
pricing in this Agreement is found to be [* * *] than Jato's then current
standard pricing for Services of the same type, size, network configuration
and technical characteristics, Jato agrees to [* * *]. Jato pricing includes
both DSL line and local loop pricing. Jato will be responsible for
interconnection and associated costs between Jato's aggregated xDSL services
for a given market and Partner's ATM service point.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Speed 144 192 384 768 1100 1500
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Monthly Fee [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- --------------------------------------------------------------------------------------------------------
</TABLE>
Service Level Agreement : See Exhibit C:
EXHIBIT D: TARGETED MARKETS
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
SERVICE LEVEL AGREEMENT: EXHIBIT C:
CUSTOMER DIGITAL SUBSCRIBER LINE (DSL) SERVICE LEVEL AGREEMENT (SLA)
---------------------------------------------------------------------------
This Service Level Agreement ("SLA") applies to the digital subscriber
line service ("Network Services") provided by Jato Communications, Inc.
("Jato"). This SLA is subject to, and hereby incorporates by reference, the
terms and conditions set out in the underlying agreement between Jato and
Customer covering the Network Services (the "Network Services Agreement").
This SLA applies only to U.S. customers of Jato with term plan commitments of
at least one (1) year and replaces any service parameters and credit
provisions contained in any existing agreements between Jato and Customer
with respect to the Network Services.
1. DESCRIPTION OF COVERED NETWORK SERVICES
1.1 The Network Services consist of a permanently connected xDSL Internet
access circuit for Customer locations within 18,000 feet of a Jato switch.
The circuit will provide speeds ranging from 160 Kilobits per second to 1.55
Megabits per second for dedicated circuits that directly connect Customer's
premise equipment to one of Jato's network access hubs ("Hub(s)") and which
speeds are not affected by Customer's facilities or by traffic
characteristics beyond the Jato network.
1.2 This SLA covers (i) the Jato router port in the Hub which connects directly
to Customer's local access circuit, (ii) the Jato network backbone
interconnecting the Hubs, (iii) supporting Jato systems which provide routing
and other functions which enable Customer to logically interact with the
network, and (iv) the local loop circuit between Customer's premise and the Hub
if provided by Jato or a Jato affiliate, except for circuits where maintenance
and conditioning is controlled by the local telephone company or another third
party provider. This SLA covers only circuits located entirely in the contiguous
United States.
1.3 This SLA specifically excludes Network Services issues of any kind related
to (i) acts or omissions of Customer or any third party, (ii) customer premise
equipment (whether or not provided by Jato), (iii) interconnections between
Jato's network and any third party provider network (other than a local loop
provided by Jato or its subsidiary or affiliate), (iv) Jato network maintenance,
and (v) force majeure events (as defined in the Network Services Agreement).
Network Services in such circumstances are not Covered Network Services.
2. NETWORK SERVICES PARAMETERS AND CREDITS
2.1. Network Monitoring
All Network Services parameters are monitored 24 hours per day, 7 days per week.
Jato will inform Customer of all scheduled maintenance which could reasonably be
expected to cause significant degradation in the Network Services at least two
(2) days prior to the planned maintenance. Generally, maintenance is scheduled
between 12:00 AM and 4:00 AM local time at the Hub being serviced, or at other
times of low network utilization generally.
2.2. Network Availability
Jato Network Service is available [* * *] of the time when measured within its
own network. A Covered Network Service shall be available [* * *] of the time to
customers as measured by Jato on a monthly basis; otherwise, Customer becomes
eligible for a credit as set forth below.
Upon Customer's timely request, Jato will calculate Customer's Network
Unavailability in any calendar month. "Network Unavailability" shall mean the
number of minutes that the Covered Network Service is unavailable for
Customer's use in the contiguous United States, but does not include any
unavailability continuing for sixty (60) minutes or less (or any
unavailability which Customer fails to report to Jato within five (5) days of
such occurrence), or which is otherwise excluded under paragraph 1.3 above.
All claims of credits for Network Unavailability must be supported by one or
more Jato trouble tickets that document the nature and duration of the
problem. For each cumulative hour of Network Unavailability, or additional
fraction thereof, Customer shall be entitled to a credit in an amount equal
to the pro-rated charges for one (1) day of the applicable monthly recurring
charge for the affected portion of the Covered Network Service.
2.3. Latency
The Network Services parameter for monthly average round-trip latency for
transmissions between Jato backbone Hubs shall be less than or equal to 85
milliseconds. The monthly average round-trip latency for transmissions within
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
the DSL loop shall be less than or equal to 10 milliseconds. Latency shall be
calculated by averaging measurements taken by Jato during a one (1) month
period between Jato backbone Hubs and within the DSL loop. If the same
latency parameter is not met by Jato in two (2) consecutive calendar months,
the Customer shall be entitled to a credit in an amount equal to the
pro-rated charges for one (1) day of the applicable monthly recurring charge
for the affected portion of the Covered Network Service. For each consecutive
month subsequent to such two (2) month period in which the Covered Network
Service fails to meet the same latency parameter, Customer will receive an
additional one (1) day credit. Once Jato determines that the Covered Network
Service performance is within the latency parameters, Customer will receive
no further credits.
2.4 Network Service Support
Jato will be responsive to customers seeking information with respect to
their Network Service.
Jato will use commercially reasonable efforts to inform Customer of Network
Services-affecting problems as soon after their occurrence as is practicable,
provided Customer maintains current and accurate contact information with
Jato. To the extent available, Jato will communicate the nature and scope of
the problem, the actions being undertaken to resolve the problem and an
estimate of when the problem will be resolved. Generally, problem escalation
and mean time to respond (MTTR) are dependent on the priority of the problem
and are addressed in accordance with the following schedule.
<TABLE>
<CAPTION>
PRIORITY REFERRAL TO LEC/IEC MTTR
- ----------------------------------------------------------------------------------------
<S> <C> <C>
P1 Within 45 minutes [* * *]
P2 Within 90 minutes [* * *]
P3 Within 210 minutes [* * *]
P4 Within 255 minutes [* * *]
</TABLE>
P1: major outage where multiple Jato customers are down in any one Metropolitan
Service Area
P2: Customer itself is without any service
P3: all components operational, but service significantly degraded or nearly
unusable
P4: less critical configuration or installation problems or questions
2.5. Installation
Jato shall credit Customer's account for 100% of the installation charges paid
or payable by Customer for any circuit that is not activated (i) within forty
(40) business days for 56k and DS-1 circuits, or (ii) within sixty (60) business
days for DS-3 circuits. The installation intervals shall be measured from the
date Jato acknowledges it has received a completed service order from the
Customer which permits Jato to complete and activate the circuit (per Jato's
records). No credits shall be provided for circuits ordered directly by
Customer, or for circuits where the completed service order is modified by or at
the initiative of Customer after it is originally completed. Installation
credits are not available for OCX circuits under this SLA, nor are installation
credits available for circuits to be installed in whole or in part by a local
telephone company or any unaffiliated local provider.
2.6 Timing of Credits; Credits Not Cumulative
The credits made available to Customer under this SLA will be provided to
Customer on its next bill, or as promptly thereafter as it can be provided after
the qualification for the credit and its amount are determined. Credits that may
be made available under this SLA are not cumulative with respect to any Covered
Network Services. In no event shall the total of any credits established under
this SLA for any month exceed the total recurring charge for the affected
Covered Network Service for such month.
2.7 Tariffed Offerings
If any of the Network Services are or become a common carrier service that by
law are subject to regulation, and they are provided under tariff, the service
level parameters and credits that are applicable to Customer for any Covered
Network Services otherwise covered under this SLA shall be those parameters and
credits that are set out in the applicable tariff, which shall not be of a lower
quality than what is stated here.
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
EXHIBIT D: DEPLOYMENT CITIES
In the following cities Jato Communications is designated as a non-exclusive
Global Crossing's Preferred Provider of DSL Services:
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
Based upon pricing and SLAs being met, Jato may also be designated as a
non-exclusive preferred supplier of DSL Services in an additional market
footprint covering the following cities currently not covered by Jato:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
</TABLE>
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
FEBRUARY 24, 2000
<PAGE>
JATO COMMUNICATIONS CORP.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of this 24th day of February, 2000, by and among JATO
COMMUNICATIONS CORP., a Delaware corporation (the "COMPANY"), and Global
Crossing Bandwidth, Inc., a Delaware corporation, whose name and address are set
forth on the Schedule of Purchasers attached hereto as EXHIBIT A ("PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of five million (5,000,000) shares of its Series D Preferred Stock,
$.01 par value (the "SHARES"); and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
and Purchaser desires to purchase a portion of the Shares from the Company on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance to
Purchaser of the Shares and (ii) the issuance of such shares of Common Stock to
be issued upon conversion of the Shares (the "CONVERSION SHARES"). The Shares
and the Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Certificate of Incorporation of the
Company, in the form attached hereto as EXHIBIT B (the "CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined), the Company hereby agrees to issue and
sell to Purchaser and Purchaser agrees to purchase from the Company, the number
of Shares set forth opposite Purchaser's name on EXHIBIT A at a purchase price
of $5.60 per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "CLOSING") shall take place on the date hereof, at the
offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80302, or at such other time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "CLOSING DATE").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser one or more stock
certificates, as Purchaser may request,
1.
<PAGE>
representing the number of Shares to be purchased at the Closing by
Purchaser, registered in Purchaser's name, against payment of the purchase
price therefor, by check or wire transfer made payable to the order of the
Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the
Company to the Purchaser at the Closing, the Company hereby represents and
warrants to Purchaser as of the date of this Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and each
Subsidiary (as defined in Section 3.2 below) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
or, with respect to Jato Communications Corp. of Virginia, the Commonwealth of
Virginia. Each of the Company and Subsidiary has all requisite corporate power
and authority to own and operate their respective properties and assets. The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, the Second Amended and Restated Investors' Rights Agreement, in
the form attached hereto as EXHIBIT C (the "INVESTORS' RIGHTS AGREEMENT"), and
the Second Amended and Restated Stockholders' Agreement, in the form attached
hereto as EXHIBIT D (the "STOCKHOLDERS' AGREEMENT"), issue and sell the Shares
and the Conversion Shares and to carry out the provisions of this Agreement, the
Investors' Rights Agreement, the Stockholders' Agreement and the Certificate.
Each of the Company and Subsidiary has the requisite corporate power and
authority to carry on its business as presently conducted and as presently
proposed to be conducted. Each of the Company and Subsidiary is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of their respective
activities and of their respective properties (both owned and leased) make such
qualifications necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or Subsidiary or
their respective businesses. The Company has made available to the Purchaser
true, correct and complete copies of the Company's Restated Certificate of
Incorporation and Amended Bylaws, each as amended to date and in full force and
effect on the date hereof. The Company has made available to the Purchaser true,
correct and complete copies of Subsidiary's Certificate of Incorporation and
Bylaws, each as amended to date and in full force and effect on the date hereof.
Since its inception, Subsidiary has had no operations and has not incurred any
material obligations.
3.2 SUBSIDIARIES. Other than Jato Operating Corp., a Delaware
corporation, Jato Operating Two Corp., a Delaware corporation, and Jato
Communications Corp. of Virginia, a Virginia corporation (collectively, the
"SUBSIDIARY"), the Company owns no equity securities of any other corporation,
limited partnership or similar entity. The Company is not a participant in any
joint venture, partnership or similar arrangement. The Company owns shares of
the Subsidiary free and clear of all encumbrances.
3.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, immediately
prior to the Closing, will consist of (a) eighty million (80,000,000) shares of
Common Stock, of which six million seven hundred ninety-seven thousand eight
hundred fourteen (6,797,814) shares are
2.
<PAGE>
issued and outstanding, and (b) thirty million (30,000,000) shares of
Preferred Stock, of which one million seven hundred fifty-one thousand nine
hundred eighty-five (1,751,985) shares are designated Series A Preferred
Stock, of which one million seven hundred fifty-one thousand nine hundred
eighty five (1,751,985) are issued and outstanding, of which thirteen million
six hundred fifteen thousand three hundred twenty-two (13,615,322) shares are
designated Series B Preferred Stock, of which thirteen million six hundred
fifteen thousand three hundred twenty-two (13,615,322) are issued and
outstanding, of which four million nine hundred thirty-two thousand three
hundred eight (4,932,308) shares are designated Series C Preferred Stock, of
which four million nine hundred thirty-two thousand three hundred eight
(4,932,308) are issued and outstanding, and of which five million (5,000,000)
shares are designated Series D Preferred Stock, of which three million five
hundred seventy-one thousand four hundred twenty-eight (3,571,428) are issued
and outstanding. All issued and outstanding shares of the Company's Common
Stock and Preferred Stock (i) have been duly authorized and validly issued,
(ii) are fully paid and nonassessable and (iii) were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the
Shares are as stated in the Certificate. The Conversion Shares have been duly
and validly reserved for issuance. As of the Closing, there has been no
action taken by the Company which would have required an adjustment to the
Series D Conversion Price, as defined in the Certificate. Except as set forth
on the Schedule of Exceptions and except as may be granted pursuant to this
Agreement or the Investors' Rights Agreement, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and
rights of first refusal), proxy or stockholder agreements, or agreements of
any kind for the purchase or acquisition from the Company of any of its
securities. The Shares and the Conversion Shares have been duly authorized
and, when issued in compliance with the provisions of this Agreement and the
Certificate, will be validly issued (including, without limitation, issued in
compliance with applicable state and federal securities laws), fully paid and
nonassessable, subject to no preemptive rights, and will be free of any liens
or encumbrances; PROVIDED, HOWEVER, that the Shares and the Conversion Shares
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at
the time transfer is proposed.
(b) The authorized capital stock of (i) Jato Operating Corp.
consists of eleven hundred (1,100) shares of Common Stock, (ii) Jato Operating
Two Corp. consists of one hundred (100) shares of Common Stock, and (iii) Jato
Communications Corp. of Virginia consists of one hundred (100) shares of Common
Stock, all of which shares are issued and outstanding and held of record by the
Company.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for
the authorization of this Agreement, the Investors' Rights Agreement and the
Stockholders' Agreement, the performance of all obligations of the Company
hereunder and thereunder at the Closing and the authorization, sale, issuance
and delivery of the Shares pursuant hereto and the Conversion Shares pursuant
to the Certificate has been taken or will be taken prior to the Closing. The
Agreement, the Investors' Rights Agreement and the Stockholders' Agreement,
when executed and delivered, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights; (ii)
general principles of
3.
<PAGE>
equity that restrict the availability of equitable remedies; and (iii) to the
extent that the enforceability of the indemnification provisions in Section
3.12 of the Investors' Rights Agreement may be limited by applicable laws.
The sale of the Shares and the subsequent conversion of the Shares into
Conversion Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
3.5 FINANCIAL STATEMENTS. The Company has delivered to Purchaser (i)
its audited balance sheet as at December 31, 1998 and audited statement of
income and cash flows for the period from inception and ending December 31, 1998
and (ii) its audited balance sheet as at December 31, 1999 (the "STATEMENT
DATE") and audited consolidated statement of income for the year ending on the
Statement Date (collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements, together with the notes thereto, are complete and correct in all
material respects, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except as disclosed therein, and present fairly the financial
condition and position of the Company as of December 31, 1998 and the Statement
Date.
3.6 LIABILITIES. The Company has no material liabilities and, to its
knowledge, knows of no material contingent liabilities not otherwise disclosed
in the Financial Statements, except current liabilities incurred in the ordinary
course of business subsequent to the Statement Date which have not been, either
in any individual case or in the aggregate, materially adverse.
3.7 AGREEMENTS; ACTION.
(a) Except as set forth on the Schedule of Exceptions and except
for agreements explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or their respective affiliates.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to indebtedness and other obligations
incurred in the ordinary course of business or as disclosed in the Financial
Statements) individually in excess of $25,000 or, in the case of indebtedness
and/or liabilities individually less than $25,000, in excess of $75,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
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(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). No such officer, director or stockholder, or any
member of their immediate families is, directly or indirectly, interested in any
material contract with the Company (other than such contracts as relate to any
such person's ownership of capital stock or other securities of the Company).
The Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.9 ABSENCE OF CHANGES. Except as set forth on the Schedule of
Exceptions, since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial condition,
earnings or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition, earnings or
operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than immaterial
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder including, without
limitation, any (i) increase in the compensation payable or to become payable by
the Company to any of the Company's employees, (ii) any bonus, incentive
compensation, service award or other like benefit, granted,
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made or accrued, contingently or otherwise, to or for the credit of the
Company's employees, or (iii) any employee welfare, pension, retirement,
profit-sharing or similar payment or arrangement (whether or not subject to
ERISA) made or agreed to by the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) (i) Any change in practice with respect to taxes, (ii) any
making, changing or revoking of any tax election, or (iii) any settlement or
compromise of any dispute involving a tax liability;
(n) Any change in the number of shares of capital stock of the
Company issued and outstanding;
(o) Any failure to conduct the business of the Company in the
ordinary course;
(p) Any change in the method of accounting or accounting practice
of the Company;
(q) Any change in the Company's lines of business; or
(r) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company. For purposes of this subsection (r), a material and adverse effect
shall only be deemed to occur if its monetary impact exceeds, or with the
passage of time, will exceed $75,000.
3.10 REAL PROPERTIES; TANGIBLE PERSONAL PROPERTY.
(a) REAL PROPERTIES. The Schedule of Exceptions sets forth each
lease or other agreement (including easements) under which the Company leases or
has rights in any real property (the "REAL PROPERTY LEASES," and, each
individually, a "REAL PROPERTY LEASE"). The Company has a valid and subsisting
leasehold interest in all the real property which is the subject of each Real
Property Lease. The Company does not presently own, and has never owned, any
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real property and does not presently operate, and has never operated, any
real property, other than as a lessee.
(b) TANGIBLE PERSONAL PROPERTY. Except as set forth on the
Schedule of Exceptions, (i) the Company has good, marketable and valid title to
all of the items of tangible personal property used in its operations and (ii)
all such tangible personal property is reflected on the Company's unaudited
Financial Statements, except as sold or disposed of subsequent to the date
thereof in the ordinary course of business consistent with past practices. The
tangible personal property of the Company is in good repair and working order,
reasonable wear and tear excepted, and constitutes all of the tangible personal
property necessary for the operation of the business as currently conducted.
3.11 PATENTS AND TRADEMARKS. The Company is the sole owner, free of any
lien or encumbrance, of, or has a valid license, on commercially reasonable
terms, to, all U.S. and foreign patents, registered designs, copyrights,
computer software and databases, trademarks, service marks and trade names,
whether or not registered, and other trade secrets, research and development,
formulae, inventions, processes, know-how and proprietary and intellectual
property rights and information, including all grants, registrations and
applications relating thereto (collectively, the "PROPRIETARY RIGHTS") necessary
for the conduct of its business as now conducted (the "COMPANY RIGHTS"). The
Company's rights in the Company Rights are, to the Company's knowledge, valid
and enforceable. The Company has received no demand, claim, notice or inquiry
from any person in respect of the Company Rights which challenges, threatens to
challenge or inquires as to whether there is any basis to challenge, the
validity of, or the rights of the Company in, any such Company Rights. There are
no outstanding options, licenses or agreements of any kind relating to the
Company Rights, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the Proprietary Rights of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. The Company has taken, and
will take, all actions which are necessary in order to protect the Company
Rights and to acquire additional Proprietary Rights, consistent with prudent
commercial practices in the telecommunications industry. To the knowledge of the
Company, the Company is not in violation or infringement of, and has not
violated or infringed, any Proprietary Rights of any other person. To the
knowledge of the Company, no person is infringing any Company Rights. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company's business by the
employees of the Company, nor will, to the Company's knowledge, the conduct of
the Company's business as proposed conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Certificate or Amended Bylaws, or of any provision
of any mortgage, indenture, contract, agreement, instrument or contract to which
it is party or by which it is bound
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or of any judgment, decree, order, writ or any statute, rule or regulation
applicable to the Company which would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of the Company. The execution, delivery, and performance of and compliance
with this Agreement, the Investors' Rights Agreement, the Stockholders'
Agreement and the Compliance Certificate to be delivered pursuant to Section
5.1(f) hereof, and the issuance and sale of the Shares pursuant hereto and of
the Conversion Shares pursuant to the Certificate, will not, with or without
the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such
term, or result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Investors' Rights Agreement
or the Stockholders' Agreement or the right of the Company to enter into any of
such agreements, or to consummate the transactions contemplated hereby or
thereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of or in
violation of any order, writ, injunction, judgment or decree or any rule or
regulation of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
3.14 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (i) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (ii) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for. Neither the Company nor the Subsidiary is a
party to any agreement relating to allocating or sharing the payment of, or
liability for taxes with respect to, any taxable period. Neither the Company nor
Subsidiary has any deferred income reportable for a period ending after the
Closing Date that is attributable to a transaction (e.g., an installment sale)
occurring in, or resulting from a change of accounting method for, a period
ending on or prior to the Closing Date.
3.15 EMPLOYEES. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit
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sharing plan, retirement agreement or other employee compensation plan or
agreement. Neither the Company, nor any entity which is required to be
aggregated with the Company pursuant to Sections 414(b), (c), (m) or (o) of
the Internal Revenue Code of 1986 has any liability whether actual or
contingent, with respect to any employee benefit plan or arrangement. To the
Company's knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating
to the right of any such individual to be employed by, or to contract with,
the Company because of the nature of the business to be conducted by the
Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's
contracts with its independent contractors, will not result in any such
violation. The Company has not received any notice alleging that any such
violation has occurred. No employee of the Company has been granted the right
to continued employment by the Company or to any material compensation
following termination of employment with the Company. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees. To the Company's knowledge, the Company
is in compliance with all laws and orders relating to the employment of
labor, including, without limitation, all such laws and orders relating to
wages, hours, discrimination, civil rights, safety and the collection and
payment of withholding and/or Social Security taxes and similar taxes. There
are no complaints, charges or claims against the Company pending, or, to the
Company's knowledge, threatened to be brought or filed, with any governmental
entity or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment of any
individual by the Company.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement that effectively waives any ownership
rights in the invention or authorship of any Company Rights and has assigned to
the Company all rights with respect thereto. No current employee, officer or
consultant of the Company has excluded works or inventions made prior to his or
her employment with the Company from his or her assignment of the works or
inventions pursuant to such employee, officer or consultant's Non-Competition,
Proprietary Information and Inventions Agreement in the form attached hereto as
EXHIBIT E.
3.17 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the Company planning to work less than full time at the
Company in the future.
3.18 REGISTRATION RIGHTS. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to register (as defined in Section 1 of the Investors'
Rights Agreement) any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
3.19 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership
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of its properties which violation would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of the Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of the Shares or the Conversion
Shares, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed
in a timely manner. The Schedule of Exceptions sets forth the states in which
the Company has obtained all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company.
3.20 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the Schedule
of Exceptions, the Investors' Rights Agreement, the Stockholders' Agreement and
all other documents delivered by the Company to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, do not contain any untrue statement of a material fact nor
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact peculiar to the
Company and known to the Company which materially adversely affects, or
reasonably could be expected to materially adversely affect in the future, the
business, property or assets, or financial condition of the Company, which has
not been set forth in this Agreement or in the other documents described herein
or furnished to the Purchaser by or on behalf of the Company prior to the date
hereof in connection with the transactions contemplated hereby.
3.21 APPLICATION OF PROCEEDS. The proceeds of the sale of the Shares
will be used by the Company to fund the capital expenditures and working capital
needs of the Company and for other general corporate purposes. The Company does
not own any "margin security" within the meaning of Regulation T (12 CFR Part
220) of the Board of Governors of the Federal Reserve System (herein called a
"margin security") or "margin stock" within the meaning of Regulation U (12 CFR
Part 221) of the Board of Governors of the Federal Reserve System (herein called
"margin stock"). Neither the Company nor any agent acting on its behalf, has
taken or will take any action which might cause this Agreement to violate
Regulation T, Regulation U, Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, in each case as in effect now or as the same hereafter may be in
effect.
3.22 CERTAIN LIMITATIONS. Neither the nature of the Company, nor any of
its respective businesses or properties, nor any relationship between the
Company and any other person, nor any circumstance in connection with the offer,
issue, sale or delivery of the Shares (other than in any such case, any matter
relating to the Purchaser) is, such as to require or give rise to any limitation
on any Purchaser's ownership of any equity securities of the Company.
3.23 ENVIRONMENTAL.
(a) To the Company's knowledge, the Company complies, and at all
times has complied, in all material respects with all applicable Environmental
Laws. For the purposes hereof, "ENVIRONMENTAL LAW" shall mean any judgment,
decree, order, law, permit, license,
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rule, regulation or agency requirement relating to or addressing the
environment, health or safety (to the extent relating to exposure to any
hazardous substance), including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Resource Conservation and Recovery Act, as amended, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal
Clean Air Act, the Toxic Substances Control Act and any federal, state, local
or foreign statute, regulation, ordinance, order or decree relating to
health, safety (in the case of health and safety to the extent relating to
exposure in the workplace or otherwise to any Hazardous Substance) or the
environment.
(b) There is not now pending or, to the Company's knowledge,
threatened any action, claim, proceeding or investigation nor has the Company
received any notice, claim, demand letter, or request for information at any
time, alleging that the Company may be in violation of, or liable under, any
Environmental Law.
(c) To the Company's knowledge, without initiating any inquiry,
there are no hazardous substances located on the properties currently or
formerly owned or operated by the Company (including soil, groundwater or
surface features and buildings or structures thereon) other than as permitted
under applicable Environmental Laws, and none of the properties contain, or has
contained, any underground storage tank.
3.24 INSURANCE. The Company maintains and/or is covered by valid
policies of workers' compensation insurance and of insurance with respect to its
properties and business. The Company currently maintains, in full force,
insurance covering the risks of the Company, if any, of such types and in such
amounts and with such deductibles as are customary for other companies engaged
in similar lines of business and with good and responsible insurance companies.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and to
carry out their provisions. All action on Purchaser's part required for the
lawful execution and delivery of this Agreement, the Investors' Rights Agreement
and the Stockholders' Agreement has been or will be effectively taken prior to
the Closing. Upon their execution and delivery, this Agreement, the Investors'
Rights Agreement and the Stockholders' Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
(ii) general principles of equity that restrict the availability of equitable
remedies and (iii) to the extent that the enforceability of the indemnification
provisions of the Investors' Rights Agreement may be limited by applicable laws.
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4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares or the Conversion Shares under the circumstances, in the
amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) ACCREDITED INVESTOR. Purchaser represents that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(d) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. Purchaser has been advised or
is aware of the provisions of Rule 144 promulgated under the Securities Act
as in effect from time to time, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the availability of certain
current public information about the Company, the resale occurring following
the required holding period under Rule 144 and the number of shares being
sold during any three-month period not exceeding specified limitations.
(e) RESIDENCE. The office or offices of the Purchaser in which
its investment decision was made is located at the address or addresses of
the Purchaser set forth on EXHIBIT A.
4.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the
Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement and the Stockholders'
Agreement.
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SECTION 5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all respects as of the Closing Date with the
same force and effect as if they had been made as of the Closing Date, and the
Company shall have performed all obligations and conditions herein required to
be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance
of the Shares and the proposed issuance of the Conversion Shares shall be
legally permitted by all laws and regulations to which Purchaser and the Company
are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement, the Investors'
Rights Agreement and the Stockholders' Agreement (except for such as may be
properly obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been
approved by the Board of Directors of the Company and filed with the Secretary
of State of the State of Delaware and shall be in full force and effect.
(e) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(f) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchaser a Compliance Certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the effect that the conditions
specified in subsections (a), (c), (d) and (e) of this Section 5.1 have been
satisfied.
(g) SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. A
Second Amended and Restated Investors' Rights Agreement, substantially in the
form attached hereto as EXHIBIT C, shall have been executed and delivered by the
parties thereto.
(h) SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. A Second
Amended and Restated Stockholders' Agreement, substantially in the form attached
hereto as EXHIBIT D, shall have been executed and delivered by the parties
thereto.
(i) LEGAL OPINION. Purchaser shall have received from Cooley
Godward LLP an opinion addressed to them, dated as of the Closing Date, in
substantially the form attached hereto as EXHIBIT G.
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(j) JATO SERVICES AGREEMENT. A Jato Services Agreement,
substantially in the form attached hereto as EXHIBIT H, shall have been executed
and delivered by the parties thereto.
(k) CAPACITY AGREEMENT. A Capacity Agreement, substantially in
the form attached hereto as EXHIBIT I, shall have been executed and delivered by
the parties thereto.
(l) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, all documents and instruments incident to such transactions and all
documents, instruments and proceedings related to the Purchaser's business,
technical and legal due diligence shall be reasonably satisfactory in substance
and form to Purchaser and its special counsel, and Purchaser and its special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction, on
or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and correct
in all respects at the date of the Closing, with the same force and effect as if
they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement, the Investors'
Rights Agreement and the Stockholders' Agreement (except for such as may be
properly obtained subsequent to the Closing).
(d) FILING OF CERTIFICATE. The Certificate shall have been
approved by the Board of Directors of the Company and filed with the Secretary
of State of the State of Delaware and shall be in full force and effect.
(e) SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. A
Second Amended and Restated Investors' Rights Agreement, substantially in the
form attached hereto as EXHIBIT C, shall have been executed and delivered by
Purchaser.
(f) SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT. A Second
Amended and Restated Stockholders' Agreement, substantially in the form attached
hereto as EXHIBIT D, shall have been executed and delivered by Purchaser.
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(g) RIGHT OF FIRST REFUSAL AND STANDSTILL AGREEMENT. The Right of
First Refusal and Standstill Agreement, substantially in the form attached
hereto as EXHIBIT F, shall have been executed and delivered by the parties
thereto.
(h) JATO SERVICES AGREEMENT. A Jato Services Agreement,
substantially in the form attached hereto as EXHIBIT H, shall have been executed
and delivered by the parties thereto.
(i) CAPACITY AGREEMENT. A Capacity Agreement, substantially in
the form attached hereto as EXHIBIT I, shall have been executed and delivered by
the parties thereto.
SECTION 6. CERTAIN POST-CLOSING COVENANTS OF THE COMPANY
6.1 FINANCIAL INFORMATION AND REPORTING. The Company agrees to provide
to Purchaser the same rights to basic financial information and reporting as
have been extended to the holders of the Company's Series B Preferred Stock
under Sections 4.1(d) and 4.1(f) of the Investors' Rights Agreement, and will
extend to Purchaser the rights to information as to any pending material
litigation and any material default under any material agreement as has been
granted under Section 4.1(e) of the Investors' Rights Agreement, and shall grant
to Purchaser the same extensions or continuations of such rights as may be
granted from time to time to any person.
6.2 USE OF NAME IN CONNECTION WITH OFFERING. The Company agrees to not
(a) identify Purchaser as a "business partner" or "strategic partner" in the
Company's registration statement, and (b) use the name and logo of Purchaser
within such registration statement, unless it has received the advance approval
by Purchaser of the layout and location of such use.
SECTION 7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchaser and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Exhibits and
Schedules hereto, including the Investors' Rights Agreement, the Stockholders'
Agreement and the Schedule of Exceptions, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof
15.
<PAGE>
and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically
set forth herein and therein. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement or the Certificate, shall impair
any such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on
Purchaser's part of any breach, default or noncompliance under this Agreement,
the Investors' Rights Agreement, the Stockholders' Agreement or under the
Certificate or any waiver on such party's part of any provisions or conditions
of the Agreement, the Investors' Rights Agreement, the Stockholders' Agreement
or the Certificate must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Investors' Rights Agreement, the Stockholders' Agreement, the
Certificate, by law, or otherwise afforded to any party, shall be cumulative and
not alternative.
7.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) upon receipt after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on EXHIBIT A attached hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
7.8 TITLES AND SUBTITLES. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.10 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto
further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in
this Section 7.10 being untrue.
16.
<PAGE>
7.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement, the Investors' Rights Agreement or the Stockholders'
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES D
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
JATO COMMUNICATIONS CORP. GLOBAL CROSSING BANDWIDTH, INC.
By: /s/ Gerald K. Dinsmore By: /s/ Barbara J. Laverdi
----------------------------------- ---------------------------------
Name: Gerald K. Dinsmore Name: Barbara J. Laverdi
--------------------------------- -------------------------------
Title: President and C.E.O. Title: Assistant Secretarty
-------------------------------- ------------------------------
By: /s/ Charles F. Barker
---------------------------------
Name: Charles F. Barker
-------------------------------
Title: C.F.O. Carrier Services
------------------------------
1099 18th Street, Suite 2200 180 South Clinton Avenue
Denver, CO 80202 Rochester, NY 14646
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
- ---------------- ---------------- --------------
<S> <C> <C>
Global Crossing Bandwidth, Inc.
180 South Clinton Avenue
Rochester, NY 14646
Attention: Tony Cassara 892,857 $4,999,999.20
</TABLE>
A-1.
<PAGE>
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
B-1.
<PAGE>
EXHIBIT C
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
C-1.
<PAGE>
EXHIBIT D
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
D-1.
<PAGE>
EXHIBIT E
FORM OF PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
NON-COMPETITION, PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
As an employee of JATO Communications Corp., a Delaware corporation,
its subsidiaries or its affiliates (together, the "Company"), and as a condition
of my employment by the Company and in consideration of the compensation now and
hereafter paid to me, I agree to the following (the "Agreement"):
1. MAINTAINING CONFIDENTIAL INFORMATION
(a) COMPANY INFORMATION. I agree at all times during the term of my
employment and thereafter to hold in strictest confidence, and
not to use, except for the benefit of the Company, or to
disclose to any person, firm or corporation, without the written
authorization of the Board of Directors of the Company, any
trade secrets, confidential knowledge, data or other proprietary
information of the Company. By way of illustration and not
limitation, this shall include information relating to products,
processes, know-how, methods, software, developmental work,
improvements, discoveries, plans for marketing and selling,
business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers, and
information regarding the skills and compensation of other
employees of the Company. Notwithstanding the foregoing,
confidential information shall not include any information
which:
(i) at the time of disclosure, or thereafter, is generally available
to and known by the public;
(ii) was or is available to me on a non-confidential basis from a
source other than the Company; or
(iii) has been independently acquired or developed by me without
violating any of my obligations under this Agreement, as shown by my
competent written records.
(b) THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive confidential or
proprietary information from third parties subject to a duty on
the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain
limited purposes. I agree that I owe the Company and such third
parties, both during the term of my employment and thereafter, a
duty to hold all such confidential or proprietary information in
the strictest confidence and not to, except as is consistent
with the Company's agreement with the third party, disclose it
to any person, firm or corporation or use it for the benefit of
anyone other than the Company or such third party, unless
expressly authorized to act otherwise by an officer of the
Company.
2. ASSIGNMENT OF INVENTIONS AND ORIGINAL WORKS.
I agree that I will make prompt written disclosure to the Company,
will hold in trust for the sole right and benefit of the Company, and hereby
assign to the Company all my right, title and interest in and to any ideas,
inventions, original works of authorship, developments, improvements or trade
secrets which I may solely or jointly conceive or reduce to practice, or cause
to be conceived or reduced to practice, during the period of my employment with
the Company and for one (1) year after my employment. This Agreement will not be
deemed to require assignment of any invention developed entirely on my own time
without using the Company's equipment, supplies, facilities or trade secrets and
neither related to the Company's actual or anticipated business, research or
development, nor resulted from work performed by me for the Company.
3. NO CONFLICTS OR SOLICITATION
For the period of my employment by the Company and for one (1) year
following my termination, I will not interfere with the business of the Company
by (i) soliciting, attempting to solicit, inducing, or otherwise causing any
employee of the Company to terminate his or her employment in order to become an
employee, consultant or
E-1.
<PAGE>
independent contractor to or for any other entity engaged in marketing or
selling the type of products and services offered by the Company or (ii)
directly soliciting the business of any customer or client of the Company
(other than on behalf of the Company) for the type of products and services
offered by the Company.
4. COVENANT NOT TO COMPETE.
(a) I agree that during my employment with the Company, I will not
directly or indirectly engage in (whether as an employee,
consultant, proprietor, partner, director or otherwise), or have
any ownership interest in, or participate in the financing,
operation, management or control of, any person, firm,
corporation or business that engages in a "Restricted Business"
in a "Restricted Territory" (as defined below). It is agreed that
ownership of (i) no more than ten percent (10%) of the
outstanding voting stock of a publicly traded corporation or (ii)
any stock I presently own or (iii) any options or other rights to
acquire shares of a company's capital stock I presently own shall
not constitute a violation of this provision.
(b) As used herein, the terms:
(i) "Restricted Business" shall mean any competitive local exchange
carrier, high speed data communication services provider or any
business which otherwise engages in any other manner in any business
which is competitive with the Company.
(ii) "Restricted Territory" shall mean all regions within a fifty mile
radius of those cities in which the Company operates, or has disclosed
to you that it intends to operate, a business.
5. RETURN OF COMPANY DOCUMENTS
When I leave the employ of the Company, I will deliver to the Company
(and will not keep in my possession, recreate or deliver to anyone else) any and
all documents and other property, together with all copies thereof (in whatever
medium recorded) belonging to the Company, its successors or assigns whether
kept at the Company, home or elsewhere. I further agree that any property
situated on the Company's premises and owned by the Company, including disks and
other storage media, filing cabinets or other work areas, is subject to
inspection by Company personnel at any time with or without notice.
6. LEGAL AND EQUITABLE REMEDIES
Because my services are personal and unique and because I may have
access to and become acquainted with the proprietary information of the Company,
the Company shall have the right to enforce this Agreement and any of its
provisions by injunction, specific performance or other equitable relief,
without bond and without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
7. NOT AN EMPLOYMENT CONTRACT. I agree and understand that nothing in
this Agreement shall confer any right with respect to continuation of my
employment by the Company, nor shall it interfere in any way with my right or
the Company's right to terminate my employment at any time, with or without
cause.
8. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Agreement will be governed by and construed
according to the laws of the State of Colorado, excluding
conflicts of laws principles. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in
Colorado for any lawsuit filed there against me by the Company
arising from or relating to this Agreement, or such other
location as the Company's principal executive office may then be
located.
(b) SEVERABILITY. If one or more of the provisions in this Agreement
are deemed unenforceable by law, then the remaining provisions
will continue in full force and effect. Moreover, if any
restriction set forth in Sections 3 or 4 hereof is found by any
court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range
of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range
of activities or geographic area as to which it may be
enforceable.
(c) BENEFIT; BINDING EFFECT. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives
and will be for the benefit of the Company, its successors and
its assigns.
E-2.
<PAGE>
(d) SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement
by the Company to any successor in interest or other assignee.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I
MAKE DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE
COMPANY'S PROPRIETARY INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS.
Dated:
------------------- ---------------------------------
Name
Address
-------------------------
---------------------------------
---------------------------------
ACCEPTED AND AGREED TO:
JATO COMMUNICATIONS CORP.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
E-3.
<PAGE>
EXHIBIT F
RIGHT OF FIRST REFUSAL AND STANDSTILL AGREEMENT
F-1.
<PAGE>
EXHIBIT G
LEGAL OPINION
G-1.
<PAGE>
EXHIBIT H
JATO SERVICES AGREEMENT
H-1.
<PAGE>
EXHIBIT I
CAPACITY AGREEMENT
I-1.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
SECTION 1.AGREEMENT TO SELL AND PURCHASE...................................1
1.1 Authorization of Shares..................................1
1.2 Sale and Purchase........................................1
SECTION 2.CLOSING, DELIVERY AND PAYMENT....................................1
2.1 Closing..................................................1
2.2 Delivery.................................................1
SECTION 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................2
3.1 Organization, Good Standing and Qualification............2
3.2 Subsidiaries.............................................2
3.3 Capitalization; Voting Rights............................2
3.4 Authorization; Binding Obligations.......................3
3.5 Financial Statements.....................................4
3.6 Liabilities..............................................4
3.7 Agreements; Action.......................................4
3.8 Obligations to Related Parties...........................5
3.9 Absence of Changes.......................................5
3.10 Real Properties; Tangible Personal Property..............6
3.11 Patents and Trademarks...................................7
3.12 Compliance with Other Instruments........................7
3.13 Litigation...............................................8
3.14 Tax Returns and Payments.................................8
3.15 Employees................................................8
3.16 Proprietary Information and Inventions Agreements........9
3.17 Obligations of Management................................9
3.18 Registration Rights......................................9
3.19 Compliance with Laws; Permits............................9
3.20 Full Disclosure.........................................10
3.21 Application of Proceeds.................................10
3.22 Certain Limitations.....................................10
3.23 Environmental...........................................10
3.24 Insurance...............................................11
i.
<PAGE>
SECTION 4.REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................11
4.1 Requisite Power and Authority...........................11
4.2 Investment Representations..............................12
4.3 Transfer Restrictions...................................12
SECTION 5.CONDITIONS TO CLOSING...........................................13
5.1 Conditions to Purchaser's Obligations at the Closing....13
5.2 Conditions to Obligations of the Company................14
SECTION 6.CERTAIN POST-CLOSING COVENANTS OF THE COMPANY...................15
6.1 Financial Information and Reporting.....................15
6.2 Use of Name in Connection with Offering.................15
SECTION 7.MISCELLANEOUS...................................................15
7.1 Governing Law...........................................15
7.2 Survival................................................15
7.3 Successors and Assigns..................................15
7.4 Entire Agreement; Amendment.............................15
7.5 Severability............................................16
7.6 Delays or Omissions.....................................16
7.7 Notices.................................................16
7.8 Titles and Subtitles....................................16
7.9 Counterparts............................................16
7.10 Broker's Fees...........................................16
7.11 Attorneys' Fees.........................................17
</TABLE>
ii.
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers Exhibit A
Restated Certificate of Incorporation Exhibit B
Second Amended and Restated Investors' Rights Agreement Exhibit C
Second Amended and Restated Stockholders' Agreement Exhibit D
Form of Non-Competition Proprietary
Information and Inventions Agreement Exhibit E
Right of First Refusal and Standstill Agreement Exhibit F
Form of Legal Opinion Exhibit G
Jato Services Agreement Exhibit H
Capacity Agreement Exhibit I
</TABLE>
iii.
<PAGE>
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 9, 2000 on the consolidated financial statements of Jato
Communications Corp. as of and for the period ended December 31, 1999, and to
all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
March 14, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JATO
COMMUNICATION CORP.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,017
<SECURITIES> 0
<RECEIVABLES> 255
<ALLOWANCES> 0
<INVENTORY> 486
<CURRENT-ASSETS> 15,960
<PP&E> 37,933
<DEPRECIATION> (470)
<TOTAL-ASSETS> 55,591
<CURRENT-LIABILITIES> 3,615
<BONDS> 16,868
0
49,036
<COMMON> 96
<OTHER-SE> (14,024)
<TOTAL-LIABILITY-AND-EQUITY> 55,591
<SALES> 315
<TOTAL-REVENUES> 315
<CGS> 0
<TOTAL-COSTS> 15,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (378)
<INCOME-PRETAX> (14,860)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,860)
<EPS-BASIC> (1.64)
<EPS-DILUTED> (1.64)
</TABLE>
